Weekly Wrap on Gold

Spot gold declined almost 1.4% to around $1,930 an ounce, the lowest in two weeks and posting an over 2% weekly decline, pressured by a strong dollar and rising US Treasury yields as investors prepared for the Federal Reserve to raise interest rates to bring decades-high inflation under control aggressively. Speaking at a panel hosted by the IMF on Thursday, Fed Chair Jerome Powell said a 50-basis point interest rate increase was “on the table” for May and reiterated that Fed officials were committed to “front-end loading” inflation-fighting efforts. The dollar rebounded from a 1-week low following the comments, while benchmark 10-year US yields bounced back above 2.9%. Meanwhile, investors remained cautious of geopolitical uncertainties and the risk of stagflation, which may drive safe-haven demand and support gold prices.

The dollar index broke again above the 101 mark, a level not seen since March 2020, as investors increasingly bet the Fed will need to raise rates faster to rein in soaring inflation. Fed Chair Jerome Powell made clear when speaking as part of an International Monetary Fund panel that the central bank remains committed to taming inflation, currently at 40-year highs, while opening the door for a 50bps interest rate hike in May. Several Fed policymakers, including regional presidents Mary Daly of San Francisco, Charles Evans of Chicago and Raphael Bostic of Atlanta, echoed such a narrative this week. The most pronounced buying activity was against the pound, which tumbled to a 17-month low against the greenback. Sharp gains were also seen against risk-sensitive currencies such as the Australian and New Zealand dollars. The DXY posted its third consecutive weekly gain by rising roughly 0.6%.

Considering the strong dollar owing to the hawkish Fed stance, the outlook is bearish in gold for the last week of April. MCX Gold June may fall to Rs. 51,600 per 10 gram.


-Jigar M Trivedi

Manager – Fundamental Research Analyst (NonAgro Commodities)

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