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Gold prices surged to a record high on Tuesday, as uncertainties over US tariffs, expectations of rate cut by the US Federal Reserve in its upcoming monetary policy meeting and weak dollar boosted the demand for the yellow metal.
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The prices also soared on increased buying ahead of the festive season in the country, analysts said.
The 24 karat gold (999 purity) was quoted at Rs 1,04,662 per 10 grams on Tuesday, according to Indian Bullion and Jewellers Association (IBJA) website. On MCX, gold price for October futures touched a high of Rs 1,05,358 per 10 grams.
Uncertainties over US tariffs
Analysts said that tariff-related uncertainties and its impact on the markets have boosted demand for gold, which is regarded as a safe haven asset. In times of uncertainties, investors often turn to gold.
The US imposed 50 per cent tariffs on Indian goods exports to America from August 27.
“Potentially the market uncertainty has increased gold’s appeal as a safe haven. This (US) tariff is likely to result in higher inflation, which, in turn, it is going to affect the profitability of companies,” said Gnanasekar Thiagarajan, Co-founder & CEO of Commtrendz Research, a research firm providing advisory and trading of commodity futures and foreign exchange markets.
The uncertainty in the market has risen after a US court ruled President Trump’s trade tariffs illegal, though they will remain in effect until October 14.
US Fed rate cut expectations
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The anticipation of a rate cut by the US Federal Reserve in its monetary policy meeting scheduled on September 16-17 has also driven gold prices to lifetime high.
“Gold prices climbed to a more than four-month high, inching closer to the all-time high touched in April, supported by a weaker dollar and growing expectations for a US interest rate cut this month,” said Manav Modi, Analyst – Precious Metal -Research, Motilal Oswal Financial Services Ltd.
Probability for a 25 bps rate cut in September meet has increased to 90 per cent.
In his annual speech, delivered at a Jackson Hole symposium in Wyoming on August 22, Fed Chair Jerome Powell, signalled that a rate cut cycle could begin in September.
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When the US Federal Reserve cuts rates, the cost of carry on gold falls, which makes it cheaper for investors to buy gold.
Gold prices to remain strong
Gold prices will continue to rise amid uncertainties around US tariffs and weak rupee, analysts expect.
The rupee breached the 88-mark for the first time last week. On Monday, it touched a fresh all-time low of 88.33 against the US dollar during intraday trades.
“If this rupee trend were to continue, which I think it will, because of the tariff situation, then the gold price most likely is headed to Rs 1,09,000 per 10 gram in a short term,” said Thiagarajan of Commtrendz Research.
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He recommends that investors continue adding gold to their overall investment portfolio at the current prices
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