Today’s gold prices: What is causing the yellow metal to track the stock market during times of global uncertainty?

Gold rate today: Despite the renewed fear of the US recession, geopolitical tension in the Middle East, and the escalating US-China trade war, gold prices remained sideways throughout the week. On the Multi Commodity Exchange (MCX), the gold rate finished at ₹69,850 per 10 gm, logging a ₹58 per 10 gm rise against the previous Friday’s close of ₹69,792 per 10 gm. COMEX gold price ended at $2,470 per troy ounce, $16 per troy once lower from its previous weekend’s close of $2,486. Last week’s gold price movement could be surprising for most gold investors as the yellow metal was widely expected to skyrocket and climb to a new peak on global uncertainties. However, in contrast, gold rates followed the stock market movement, registering a 4.40 per cent dip from Friday’s high to Monday’s low and a 2.50 per cent rise from Monday’s lower level.

According to commodity market experts, after the interest rate hike by the Central Bank of Japan, the unwinding of the Yen carry trade prompted investors to unwind their outstanding positions and move to the US Dollar (USD). They said the Japanese Yen is one of the key currencies that funds global markets. They noted that the fall in the gold prices on Monday was due to the investors’ high bet on the Japanese currency. However, after the intervention by the Government of Japan, investors started to switch from the Japanese Yen to USD. They said that both assets are expected to follow each other as the outlook for the Indian stock market and gold rates depend heavily on the US Fed meeting scheduled in September.

Why is gold price following the stock market today?

Giving a counter to the doubt whether gold has lost an ‘investor’s haven’ status, Chintan Mehta, CEO at Abans Holdings, said, “Gold rate today is falling along with all risk assets as a liquidity scenario unfolds across asset classes, prompting investors to unwind their outstanding positions and move to US Dollar. The unwinding of the Yen triggered this shift in trade, where investors had borrowed in Yen — a key currency that funds global markets — to invest in higher-yielding assets, including gold and other financial instruments. With rising interest rates, the cost of maintaining Yen-based debt has increased, leading to a sudden rush by global investors to close the existing positions.”

“The selling pressure on gold shows a broader market fear, with investors looking for safety as uncertainty and volatility increase. Investors are pulling back from risky and safe assets, choosing to hold cash instead,” said Chintan Mehta of Abans Holdings.

Speaking on the gold price movement last week, Alex Kuptsikevich, Senior Market Analyst at FxPro, said, “Gold price has experienced increased volatility over the past seven days, falling 4.4 per cent from Friday’s high to Monday’s low and then rising 2.5 per cent from the low. Much of gold’s recovery on Thursday was in tandem with a massive rally in equities in response to some improvement in weekly jobless claims.”

“Technically, gold found some quick buyer support after touching its 50-day moving average. It is worth noting that in late July, the price did not bounce until the next day, and in June, it spent a long time lower, although the bulls managed to halt the downward spiral. So, the importance of this curve in the short term is growing,” the FxPro expert added.

Gold price outlook

Regarding the outlook of gold price, Alex Kuptsikevich of FxPro said, “Gold price peak in early August was lower than the July record. Moreover, in all cases where the price peaked, gold fell in the following three days, indirectly indicating a prolonged selling overhang. However, it is so muted that it does not technically disrupt the bullish picture. Partial profit taking or giving up in a bull market? The dynamics of the coming week will answer this question, with a potential climax in the release of inflation statistics and possibly retail sales.”

US Fed rate cut in focus

Expecting the cash-carry market to continue until the US Fed meeting in September 2024, an Abans Holdings expert said, “This week’s U.S. Treasury auction saw weak demand across different maturities, and even the $20 billion 30-year Treasury bond auction saw weak demand. This indicates that investors are worried about a possible recession and are waiting for clarity from the Federal Reserve and other central banks before making investment decisions.”

Advising gold investors to remember the September 2012 bear market, Alex Kuptsikevich of FxPro said, “While lower interest rates are theoretically positive for gold, in practice, the acceleration of QE in September 2012 triggered a bear market for the next three years. Later, at the end of 2015, gold reached a cyclical low on the day of the first Fed tightening. So, we should not be surprised if the start of Fed easing is negative for gold, as it would be a sign of a weak market, not a bloodless victory over inflation.”

Disclaimer: The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.