Gold prices have recently experienced a notable drop, leading many to question whether now is an ideal time to buy. The current decline in gold prices comes after a period of volatility influenced by various economic and market factors.
Gold and silver prices showed considerable fluctuations on Friday, bouncing back from one-month and three-month lows, respectively. The initial drop in prices earlier in the week was linked to several factors.First, the Indian Government’s decision to cut customs duties on these metals as part of the Union Budget exerted downward pressure on their prices. Second, concerns over a slowdown in Chinese demand also contributed to the decline. Additionally, better-than-expected US second-quarter GDP and jobless claims data added to the downward pressure on gold and silver.
Despite these declines, there was some recovery towards the end of the week. This rebound was supported by hopes that the US Federal Reserve might cut interest rates, which helped to buoy gold and silver prices.
The decline in the dollar index from its recent highs ahead of the Federal Reserve’s policy meeting also provided additional support for these precious metals. Furthermore, US inflation expectations remained stable at 2.9%, aligning with forecasts and offering further support.
Rahul Kalantri, Vice President of Commodities at Mehta Equities Ltd, said, “Gold has support at $2378-2362 and resistance at $2412-2428. Silver has support at $27.78-27.55 and resistance at $28.25-28.48. In INR terms, gold has support at Rs 67,980-67,750 and resistance at Rs 68,380-68,550, while silver has support at Rs 80,850-80,180 and resistance at Rs 81,890-82,500.”
However, the market dynamics have not been entirely favourable. On Monday, gold prices retreated again, primarily due to a stronger US dollar, which reached a two-week peak.
This made gold more expensive for holders of other currencies. Investors are closely monitoring the upcoming US Federal Reserve policy meeting for any hints of a potential interest rate cut in September, which could influence gold prices further.
In China, gold consumption declined by 5.6% in the first half of 2024 due to a drop in jewellery demand. However, purchases of gold bars and coins have risen.
Geopolitical tensions, especially in the Middle East, continue to support gold as a safe-haven asset. Additionally, gold exchange-traded funds (ETFs) saw net inflows of 9.8 metric tons last week, marking the third consecutive month of net inflows.
In India, the demand for gold might increase by 50 metric tons in the second half of the year following a significant reduction in the state gold import tax.
