Will The Rally In Gold Prices Sustain?
Whenever central banks pause increasing cost of borrowing, gold prices tend to rise, World Gold Council said in a recent report. (Photographer: Waldo Swiegers/Bloomberg)

Will The Rally In Gold Prices Sustain?

Gold prices rose to a six-year high on Tuesday driven by signs that the U.S. Federal Reserve and other central banks may turn dovish amid threats to the global economy.

The yellow metal surged almost 14 percent in the international market in the last six months, while domestic gold traded 9 percent higher. Will the trend sustain?

Will The Rally In Gold Prices Sustain?

The Fed hinted it would cut interest rates later this year because of economic uncertainties resulting from the U.S.-China trade war and lukewarm inflation projections. Whenever central banks pause increasing cost of borrowing, gold prices tend to rise, World Gold Council said in a recent report.

The International Monetary Fund lowered global growth estimates to 3.3 percent from 3.5 percent earlier. And as investors look for safe havens, gold prices are rising.

Purchases of the precious metal by central banks rose 68 percent over last year to 145.5 tonnes in the quarter ended March—the highest in six years and greater than the five-year quarterly average of 129.2 tonnes. That only added to demand and rising prices.

Commodity Futures Trading Commission positions suggest speculators were net short until last year, but most of that has seen covering and now they’re net long suggesting that there could be more upside to it, said Navneet Damani, vice president and head of research (commodities) at Motilal Oswal.

“If domestic gold prices holds firm above Rs 33,400, this could trigger further upside in price towards Rs 34,400 levels,” he said. “The medium-term target for gold is between Rs 38,000 and Rs 40,000.”

Will The Rally In Gold Prices Sustain?

Mark To, managing director of asset management and head of research at Wing Fung Financial Group, said: “As long as the Fed stays dovish, we can expect gold prices to be stronger than in the past few years. “Since rebounding from $1,160 dollar per ounce last year, we may have larger volatility as there are diverse views on the economic forecast, but the overall direction would be on the upside.”

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.