Gold: Do SIPs In Yellow Metal For Short-To-Medium Term Profits; Gold Target Price Rs 74,000-78,000 10 Grams

After the auspicious occasion of Akshaya Tritiya, the future of gold remains dynamic, shaped by various global factors such as central bank policies, geopolitical scenarios, and economic indicators, as per the research note of Religare Broking. The brokerage has recommended doing SIPs in gold for short-term to medium-term gains.

The brokerage guides that SIPs should be done for the target of Rs 74,000 in gold per 10 grams, followed by higher gains of Rs 78,000 in the future. So far in 2024, gold has been persistently climbing upward, registering an approximate 12.50% gain on domestic exchanges.

As per the brokerage, while the gains seen in the current year are commendable, the historical trend of higher returns during turbulent periods highlights gold's potential to flourish amidst heightened uncertainty.

Here are the key factors that will influence gold prices in the future as per Religare Broking:

1. Fed Monetary Policy:

Recent disappointments in US job data, combined with the central bank's leaning towards easing, have reinforced expectations of rate cuts by year-end. Investors now anticipate only one rate cut for the year. The potential for a rate cut in the latter half of the year may exert downward pressure on the dollar, potentially serving as a positive catalyst for gold prices.

Currently, Fed rates are unchanged at 5.25-5.50% for
the sixth consecutive meeting.

2. Inflation:

With U.S. inflation currently standing at 3.48%, well above the Fed's target, concerns persist. Recent economic data also suggest a slower-than-expected cooling off of inflation. The latest consumer price index report reveals a 3.5% year-over-year increase to 312.33 points in March 2024, following a 3.2% rise in February. Additionally, escalating conflicts in the Middle East have contributed to rising crude oil prices, further fueling inflation. Given gold's traditional role as a hedge
against inflation, it is expected to remain attractive for investments in the coming months.

3. Geopolitical Tensions:

Tensions persist between Israel and the wider Arab nations, and the possibility of the Ukraine-Russia conflict lingers citing the recent attacks by Russia on the gas pipelines of Ukraine, for supplying to the European Union markets. In short, there are no indications that these tensions shall be over soon. Consequently,
the haven demand shall persist in gold, leading to further appreciation in prices from current levels.

4. Global Economic Growth:

Currently, the risk of a global recession has eroded which hints towards strengthening the US economy which might lead to a better global economic position
than the previous year. However, increasing geopolitical tensions might create new problems for the world economy. As per the IMF, global inflation is forecast to decline steadily from 6.8% in 2023 to 5.9% in 2024 and 4.5% in 2025. Meanwhile, declining growth will ultimately benefit gold prices as the safe-haven demand for bullion comes into action during turbulence times.

5. Demand from Central banks:

Central banks have long seen gold as a crucial part of their financial reserves, adding it for diversification as they manage domestic currencies. In 2023, they bought 1,037 tonnes globally, slightly less than the 1,082 tonnes in 2022, the highest since 1967. Currently, central banks hold about 20% of global gold production, with one-third acquired in 2023 alone.

During Q1 of 2024, central banks acquired nearly 290 tonnes, surpassing the previous year's record, with China leading followed by Turkey and India. This strong start indicates continued robust demand for gold in 2024.

6. Gold Investment Demand:

The World Gold Council's Q1 2024 report highlights a 3% increase in global gold demand, totalling 1,238 tonnes, the strongest first quarter since 2016. This growth was mainly driven by robust over-the-counter (OTC) market investments and consistent central bank purchases. Bar and coin demand also saw a 3% rise.

Also, notably, China, saw growth in gold-backed ETF holdings in 2023, driven by global geopolitical tensions, declining dollar index, US bond yields, and uncertainty regarding future rate cuts by the Federal Reserve.

Giving a technical outlook, Religare said, "On the daily chart, prices are currently consolidating after a sharp rise, with Rs.70,000 per 10gms ($2280) acting as a
pivotal level. Although buyers are hesitant to enter during this consolidation phase, a slight dip towards the 50 SMA at Rs.68,500 per 10gms ($2235-$2240) could present a favourable buying opportunity for the next leg of upward momentum."

It added, "On the weekly chart, prices have extended away from the 20 SMA and 50 SMA, prompting bulls to anticipate a pullback. A temporary pause in prices indicates a positive signal, especially since there's a bullish flagpole pattern in play, which may extend further before prices resume their upward trajectory."

Hence, Religare suggests to investors that they have the opportunity to accumulate gold in a SIP mode during every dip as long as prices maintain above Rs.68,500 per 10gms, targeting an initial upside potential of Rs.74,000 per 10gms, followed by Rs.78,000 per 10gms levels. Conversely, a decisive break below the previous swing low of Rs.65,200 per 10gms could disrupt the trend, potentially leading gold to retest the Rs.63,300-Rs.63,800 per 10gms range.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.