Gold and silver prices have witnessed a significant surge in recent weeks, reaching new heights both domestically and internationally. Key triggers for this rally include the weakness of the US dollar, softer-than-expected Consumer Price Index (CPI) data, and the anticipation of interest rate cuts in both the US and India.
Jateen Trivedi, VP Research Analyst – Commodity and Currency, LKP Securities, highlighted that "gold and silver posted weekly gains, supported by dollar weakness below 103.75 and softer-than-expected CPI data, which reinforced expectations of interest rate cuts in both the US and India."
The ongoing discussions about tariffs are expected to maintain market volatility, with potential resolutions possibly leading to profit booking in these precious metals.
The rise in gold and silver prices can be attributed to several crucial developments, as outlined by Sugandha Sachdeva, Founder of SS WealthStreet. She noted that economic uncertainty, weakness in the US dollar, expectations of a US Federal Reserve rate cut, central banks' gold purchases worldwide, and a shift of investors from equities to gold as primary factors. The economic policies of the US, particularly fluctuating tariff decisions, have heightened global trade concerns, thereby increasing gold's appeal as a safe haven.
A notable factor influencing the rally in gold prices is the expectation of a US Federal Reserve rate cut. With inflation readings, namely CPI and Producer Price Index (PPI), coming in lower than anticipated, there is a growing consensus that the Federal Reserve might reduce rates as early as June. The February Core CPI was recorded at 0.2%, below the forecast of 0.3%, while the year-on-year CPI decreased to 2.8% from 3.0% the previous year. Consequently, the US dollar index has declined by over 4% year-to-date, making gold a more attractive investment option.
Additionally, the role of central banks in the current gold rally cannot be overlooked. Global central banks have persistently purchased gold, acquiring over 1,000 tonnes annually over the past three years. This trend has accelerated, especially after financial sanctions were imposed on Russia by Western nations in response to its invasion of Ukraine in 2022.
Sachdeva of SS WealthStreet noted that "for the coming week, market participants will keep an eye on the Fed, Bank of England, and Bank of Japan's policy meetings alongside the key US retail sales data and dollar index movement." Any geopolitical developments, including the ongoing tariff war or updates on the Russia-Ukraine ceasefire, could significantly impact gold's status as a safe-haven asset.
On the technical front, gold has already surpassed significant resistance levels. According to Sachdeva, "gold has already surpassed the key $2,930 per ounce and Rs 86,600 per 10 gm resistance levels, and we see it heading towards the $3,050 per ounce mark if prices manage to sustain above $3,000 per ounce and around Rs 89,500 per 10 gm."
However, she warns that profit-booking or exhaustion might occur near these levels, at least in the short term. This bullish trend in the bullion market has also influenced silver prices, which reached a new peak domestically, with the MCX silver rate touching Rs 1,01,999 per kg.