Amid the rising banking crisis in the US and Europe, traders are moving towards the safe haven bets and gold is among the top of their list. The yellow metal, on Monday, briefly hit Rs 60,000 for the first time on MCX, before trading around Rs 59,700 mark.
Analysts tracking the bullions say that not only the contagious banking crisis, but even the rising inflation and interest rate hikes is adding to the shine of gold. However, the falling rupee is also adding to the rise in gold prices.
Gold, which was trading around Rs 55,200 just 10 days ago has seen a rally of more than 8 per cent since then. The banking crisis triggered by Silicon Valley Bank, Signature Bank and now Europe's Credit Suisse has pushed the prices of yellow metal higher.
NS Ramaswamy, Head of Commodities, Ventura Securities said that bullion is backing its beta on the banking crisis. Last week's insane rally proves the fundamentals of safe haven and store for value as the banking credit crisis continued to grow and spread.
Gold hitting Rs 60,000 in rupee terms doesn't come as a surprise with local currency at Rs 82.45 supporting the conversion of Comex gold to $1,980 an ounce, he said. "Markets have gauged the impact of emergency liquidity measures from the Federal Reserve and other major central banks due to the banking crisis fears"
Adding more to it, Prithviraj Kothari, MD and CEO of RiddiSiddhi Bullions (RSBL) said that the Federal Reserve's consistent interest rate hikes have also raised concerns that the US economy will enter a deep recession. Whatever direction the central bank takes now could be beneficial to gold.
"This week is very crucial for precious metals prices ahead of US Fed's meeting. If the Fed stops raising interest rates, gold should benefit because it puts a short-term cap on the dollar. If inflation remains stubborn and the Fed is forced to resume tightening, the economy will suffer severely and gold will see a surge in safe-haven demand," he said.
People rush for protection in safe havens like gold when there is a crisis of confidence, especially in the financial system and banking system. Gold is arguably the most well-known safe haven in the world, which does not lose its value, like other assets.
Market participants said that gold still has a lot of steam left ahead of the Fed's meeting on Saturday. The rally may continue if the US central banker turns dovish and hints for any pause or slower rate hikes. However, if the hawkish stance continues, the gold may see some profit booking as well.
Markets are now eyeing FOMC meet for their stance on the interest rate and guidance for future action, said Abhijeet Banerjee, Senior Research Analyst - Commodities at Religare Broking.
"It could keep the previous metal volatile in the following sessions, but the trend will be positive unless we see prices closing below the Rs 58,000 level. One can eye Rs 60,500 as the next target zone," he said.
The direction is towards psychological barrier at $2,000 and or Rs 60,800 in rupee terms, which acts a strong resistance with Rs 59,750 remaining the support ($1960), said Ramaswamy from Ventura Securities." We can witness a continuation of the momentum reaching for the psychological barrier of $2,000."
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