Gold has remained resilient over the past month despite coming under pressure amid dollar strength and waning geopolitical tensions in the Middle East. The precious metal has held firm above the $2300 an ounce level, with every sell-off below the level attracting intense buying pressure. Despite the record prices, part of the resilience has to do with strong demand, especially from India.
Strong Indian Demand
The World Gold Council reports that there’s currently a robust and favorable outlook among Indian consumers for gold, making it an appealing investment option due to its rising value. Gold sales surpassed forecasts in the run-up to the Akshaya Tritiya festival. This day is considered auspicious for gold transactions by tradition. The World Gold Council notes that sales were unexpectedly high, even though prices were 23 per cent higher than the 2023 festival.
Jewelers and other industry figures shared stories indicating that many gold jewelers, bars, and coins were pre-ordered before the festival, as buyers capitalized on the lower prices after reaching their April peak. Moreover, there was a strong demand for wedding jewelry, which is usually more substantial, despite the wedding season being several months in the future.
Geopolitical Uncertainty
Amid the strong demand from the Indian market, gold prices remain well supported amid the geopolitical uncertainty in the Middle East. With Israel and Palestine engaged in one of the most protracted battles that threatens to plunge the entire region into war, demand for gold as a haven remains strong. Investors have always turned to the precious metal as a store of value in times of such uncertainty.
Likewise, political uncertainty in Europe in the aftermath of French President Emmanuel Macron calling for a snap election has also triggered some uncertainty in the European Union. With investors remaining nervous, gold has remained the preferred investment tool.
US Dollar Factor
Similarly, the double-edged factor of the US dollar has become clear over the past month. Gold has held firm above the $2300 an ounce level despite the US dollar strengthening against the basket of other currencies to highs of 106. With the strengthening of the dollar, there has been a steep depreciation of many Asian currencies.
The Japanese yen has been the hardest hit, weakening to 38-year lows. The steep loss forces central banks to hoard gold as a hedge against the strengthened US dollar. The hoarding triggers strong demand amid limited supply, making gold prices higher.
In the long term, the formation and the strengthening of the BRICs trade confederation strategy also pose significant dangers to the US dollar. Member nations have already affirmed their commitment to replacing the US dollar in global trade in favor of gold. The increased focus on using gold in international trade is one of the factors that have helped gold stabilize near all-time highs.
Nevertheless, gold’s upward momentum could be curtailed, with the US Federal Reserve remaining firm against more than one interest rate cut for the year. The precious metal had strengthened to record highs of $2450, based on expectations that the FED would carry out more than three rate cuts in 2024.
However, that has not been the case, with Fed chair Jerome Powell insisting on one cut for the year. The reduced prospect of rate cuts favors the US dollar, eroding the prospect of strengthening gold prices.
