Gold Prices Plummet Amid Global Uncertainty

Gold prices have been on a downward trajectory. Plummeting 26% from their record high of $5595 on January 29 this year. As investors seek safe-haven assets amidst rising geopolitical and economic uncertainty.

According to Praveen Singh, Head of Commodities at Mirae Asset Sharekhan, spot gold has a strong support in the $3930-$4000 zone, with a probability of falling into this support region around 25%. In Indian Rupee terms, gold prices may fall to Rs 134,000.

Gold's price slump can be attributed to a perfect storm of market sentiment. With investors cashing in on profits at record levels, triggering a sharp price drop.

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The escalating US-Iran conflict has also sent crude oil prices rocketing past $120 per barrel, fueling inflation concerns and exacerbating investor anxiety.

The US Federal Reserve has raised interest rates for the first time since 2023. And with inflation remaining high, the probability of further rate hikes in the coming months has increased. This has strengthened the US Dollar Index, making gold less attractive as a non-interest yielding asset.

However, experts say that gold prices may find support from India's festive and wedding demand, as well as central bank purchases. The rise in ETF investing has also dampened jewellery demand, according to Praveen Singh.

Additionally, geopolitical tensions, particularly between the US and China, and the US's foreign policy becoming more inward-looking, are also expected to support gold prices. Praveen Singh notes that several factors can reverse the scenario of weakness in gold, and investors are eagerly awaiting further developments.

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Analysts predict a potential interest rate hike by year-end. With nearly three more expected by the end of 2024, sparking concerns about the impact on the economy.

Meanwhile, economists warn that sustained high US inflation could signal a sharp gold price downturn, mirroring the market's experience since 2022.

Spot gold closed around $4,130/Oz this week after pulling back from its August peak of $4,698. With gold now testing new key support levels, investors are wondering how much deeper the correction could go.