Gold to retain its sheen in August, Silver likely to outperform this month
3 min read 01 Aug 2023, 02:05 PM ISTA less aggressive tone by the US Federal Reserve is a big supportive trigger for gold. Weakness in the dollar index further added gains to gold prices, analysts said.
PremiumGold prices in India witnessed a decent rally of nearly 2% in July. On Multi Commodity Exchange of India (MCX), gold got costlier by around ₹1,400 per 10 grams during the month.
The rally was driven by multiple factors that came in support of the yellow metal in the international market. The primary reason being the increasing expectations that major global central banks, including the US Federal Reserve and the European Central Bank, may be nearing the end of their current monetary policy tightening cycles.
Additionally, a softer US dollar after slower-than-expected rise in US inflation also lifted appeal for the yellow metal.
“A less aggressive tone by the US Fed is a big supportive trigger for gold. Weakness in the dollar index further added gains to gold prices. Moreover, Chinese physical gold premiums have also reached a four-month high due to robust demand," said Ajay Kedia, Director, Kedia Advisory.
Interest rate factor
The US Federal Reserve, on July 26, raised its benchmark fund rates by 25 basis points (bps) to 5.25-5.5%, as was widely expected by market participants. This brought the US interest rates to the highest level since 2001 to tackle sticky, high inflation.
Read here: US Fed raises rates by 25 bps to highest level since 2001
However, the statement by the Federal Open Market Committee (FOMC) suggested that the central bank may consider another pause at its next meeting in September. The US Fed also said it would assess a range of data points “in determining the extent of additional policy firming."
As per the latest data, US consumer inflation in June, consumer inflation cooled to its lowest rate since 2021, as the consumer price index (CPI) rose 3.0% from a year ago, down from 4.0% in May.
With easing inflation in the US, analysts expect that the Fed may be nearing the conclusion of its rate hiking cycle, which is driving positive sentiment in the prices of non-interest yielding gold.
Outlook
Going ahead in August, these similar factors are likely to come into support for the yellow metal.
However, according to Kedia, key factors to watch out for would be the impact on domestic physical demand of gold amid El Nino concerns.
“The physical demand is expected to remain subdued in August as it is a seasonally weak month for the yellow month. The monsoon is supportive and agricultural sowing has been good. But the concerns over El Nino impact still prevails that would weigh on rural gold demand and this would be a key aspect to look at," Kedia added.
Overall, according to Kedia, gold is expected to remain positive in August and trade in a range between a support of ₹58,150 and resistance of ₹59,560 on MCX.
Also Read: Gold rate today under pressure as US dollar index climbs to three week high. Opportunity to buy?
Silver
Silver prices outperformed gold last month with a sharp jump of more than 8%. The spike in silver prices was led by increasing industrial demand for the metal amid optimism over more stimulus measures in China. Gains in prices of base metals also improved sentiment for silver.
Meanwhile, the Gold-Silver ratio has been trending below 80 since months. A fall in gold-silver ratio indicates a pull up in risk-appetite and rise in industrial demand for silver and slowing safe-haven demand for gold.
Simply put, a fall in gold-silver ratio means increasing demand for silver, Kedia explained.
Going ahead, he expects silver to continue its outperformance against gold and trade with a positive bias during the August month.
According to Kedia, support for silver is seen at ₹73,200 level and resistance is placed at ₹76,800 on MCX, for the month.
Catch Live Market Updates here
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
