Gold Price Hits Four-Month Low: Is Now a Good Time to Buy with Potential US Fed Rate Cut on the Horizon?

Gold rate today: Last week, gold prices experienced considerable selling pressure due to sluggish demand for physical gold in China. COMEX gold saw a decline of approximately 4.50 percent, while in India, the drop was more significant following a 9 percent cut in customs duty on gold and silver. The gold price in India plummeted by around 9 percent from its high of ₹74,731 per 10 gm on the Multi Commodity Exchange (MCX). However, there was some recovery in gold prices on Friday after the release of US PCE inflation data.

Experts in the commodity market attribute the drop in gold prices in India to the customs duty cut on gold and silver announced in the 2024 budget. The subdued demand for physical gold in China further exacerbated the situation, resulting in a significant correction in gold prices globally. The impact was more pronounced in India due to the post-Budget adjustment, but analysts anticipated a rebound post the US inflation data release. They believe that the US PCE inflation data has fueled expectations of a rate cut by the US Fed in the September meeting.

Reasons Behind the Gold Price Plunge

Anuj Gupta, Head of Commodity & Currency at HDFC Securities, pointed out that the primary reason for the downward trend in gold prices was the government’s reduction of basic customs duties on gold and silver from 15 percent to 6 percent. Additionally, international gold prices corrected due to concerns about a potential slowdown in the seasonal demand for physical gold, particularly in China, leading to worries about a recession in jewellery and retail investment demand.

Implications of US Fed Rate Cut Speculations

Gupta mentioned that the expectation of a rebound in gold prices post the softer US PCE inflation data is driven by the increasing buzz around a possible rate cut by the US Fed in the upcoming September meeting. He suggested that a relief rally could be anticipated in bullion prices but emphasized the importance of the COMEX gold price surpassing the $2,405 per troy ounce mark to signal a bullish trend.

Gupta further highlighted that on the MCX, the current gold rate is supported at ₹66,300 per 10 gm, with a hurdle at ₹69,945 per 10 gm. The breach of either level could indicate a shift towards a bullish or bearish trend in the gold market.

In terms of technical analysis, Alex Kuptsikevich, Senior Market Analyst at FxPro, noted that the recent support for gold price was found at the 50-day moving average near $2360, indicating a correction phase rather than the end of the gold rally. He pointed out key levels to watch for potential price movements in the short term.

Kuptsikevich underlined the importance of monitoring price action around specific levels, suggesting that a sustained decline might occur if certain thresholds are broken. Conversely, a breakout could lead to continued upward momentum supported by buyer interest in the market.

Assessment of Bull vs Bear Setup

Praveen Singh, Associate VP, Fundamental Currencies & Commodities at Sharekhan by BNP Paribas, highlighted the current market sentiment concerning gold. He indicated that softer US PCE deflator inflation data could aid in recovering some recent losses but emphasized the need for improved Chinese demand or clear indications of multiple US Fed rate cuts for sustained positive movement in the gold market.

Singh pointed out that bears are eyeing a test of the $2300 level and that reclaiming the $2400 level is crucial to alleviate significant selling pressure on gold.

Disclaimer: The views and recommendations above are those of individual analysts or broking companies, not Mint. It is advisable for investors to consult certified experts before making any investment decisions.