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Informist, Monday, Mar. 17, 2025

 

By Ashutosh Pati and J. Navya Sruthi

 

MUMBAI – Gold prices touching the psychologically significant level of $3,000 per ounce last week would have brought a smile on the face of many investors. But how further can the prices rise is a question that is worrying market participants.

 

On Friday, the most-active April gold contract on COMEX hit an all-time high of $3,017.1 per ounce. On the domestic bourse, gold prices hit a record high of INR 88,310 per 10 grams. In the current year, analysts and experts see the rally in gold prices continuing. They expect prices to reach as high as $3,500 per ounce on COMEX and INR 90,000 per 10 gm on the Multi Commodity Exchange of India.  

 

Political uncertainties arising from the Russia-Ukraine conflict, the war in West Asia, and more recently the trade policies of US President Donald Trump have lifted up the safe haven demand for gold, as other investment avenues lost much of their appeal. The global stock market correction has prompted investors overseas to seek refuge in the precious metal.

 

"Beyond reinforcing gold's status as a long-term buy-and-hold asset, this surge (in prices) reflects growing global instability, which has fuelled strong demand for safe havens like bullion and, to some extent, silver," said Ole Hansen, head of commodity strategy at Saxo Bank, in a note to clients.

 

Expectations of multiple interest rate cuts by the US Federal Reserve this year, following softening of inflation print in the US have increased demand for the yellow metal which gave more than 20% return to investors in 2024. Market participants now expect the Fed to bring down interest rates three times by the end of this year, up from just one in January.

 

Global central banks and exchange-traded funds emerged as major investors in gold last year. "Global geopolitical and economic uncertainties will be major factors driving gold prices," said Motilal Oswal Financial Services in a research note. "Central banks' actions will have a notable influence on the precious metal market," it added.

 

Global gold exchange-traded funds saw net inflows of $9.4 billion in February, with assets rising by 99.9 tonnes from the previous month to 3,353.3 tonnes, according to a report by the World Gold Council. This marked the third consecutive month of flows into gold exchange-traded funds. The assets under gold exchange-traded funds rose to $306.2 billion from $294.2 billion because of rising gold prices.

 

Gold holdings with SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose by 39.6 tonnes on month to 904.1 tonnes in February. The second-largest gold-backed exchange-traded fund, iShares Gold Trust, saw an inflow of 19.4 tonnes, with holdings at 411.2 tonnes.

 

India's gold ETFs witnessed net inflows for the tenth consecutive month in February, doubling on year to INR 19.80 billion, according to data from the Association of Mutual Funds in India. Net inflows, however, fell 47% on month. In January, net inflows into gold ETFs rose to an all-time high of INR 37.51 billion.

 

The Reserve Bank of India added 72.6 tonnes of gold to its reserves last year, taking the total reserves to 876 tonnes. This marked the seventh consecutive year in which the central bank was a net buyer of gold. The demand for jewellery in India was subdued due to the rising gold prices, however, physical investment demand for bars and coins remained robust.

 

The People's Bank of China added 5 tonnes of gold in February, the fourth successive month of purchase. Gold reserves with the Chinese central bank climbed to 2,290 tonnes, the highest on record as of February-end, according to WGC.

 

In January, global central banks net bought 18 tonnes of gold. The Central Bank of Uzbekistan was the largest reported net buyer in January at 8 tonnes. The Dollar Index hovering around multi-month lows is further fuelling the gold rally. A weaker greenback makes the precious metal cheaper for foreign buyers, improving demand. The Dollar Index has fallen over 3.5% so far this month and is currently at 103.67.

 

Anindya Banerjee, vice president, commodity currency at Kotak Securities expects gold prices to remain positive and expects COMEX gold at the levels of $3,500-$3,600 per ounce by the end of 2025-26 (Apr-Mar). "...if America is thinking of on-showing a lot of its manufacturing back home, then it cannot have such an expensive dollar rate," Banerjee said. Trump's 'America First' policy cannot happen without a weaker dollar and once we see that as a policy from the US, which may take some time, we could see the biggest appreciation of gold in dollar terms, he added.

 

In the midst of the sustained rally, analysts are revising their price targets for the yellow metal, as it has surpassed their forecasts earlier than expected. Global investment bank Goldman Sachs raised its gold price forecast to $3,100 per ounce from $2,890 per ounce for end-2025. Global brokerage firm Macquarie expects gold prices to reach $3,500 per ounce by the third quarter of 2025. Similarly, domestic brokerage Kedia Advisory expects prices of the yellow metal to touch INR 92,000 per 10 gram on MCX this year.

 

At 1721 IST, the most active April gold contract on the COMEX was up 0.2% at $3,007.5 per ounce. On the MCX, the most active April gold contract was up 0.1% at INR 88,112 per 10 grams.

 

Meanwhile, some analysts believe the factors that have acted as tailwinds for the precious metal for several months could now pave the way for a correction in prices. Extreme volatility is expected in gold in the coming days as a resolution of trade tensions or a pause on rate cuts by the US Fed could trigger sharp corrections in gold prices, Kedia Advisory said in a note.

 

"...our economists at least doubt that the US central bank will completely ignore the price-driving effect of tariffs, which is why we expect rate cuts to come later than the market is currently pricing in. As a result, even if we do see gold rally again in the short term, it is unlikely to last long," Thu Lan Nguyen, head of commodity research at Commerzbank AG said in a report.

 

"We have seen a rally of more than 15% in 2025. Generally, we have seen whenever all factors are supportive, you have to be cautious at this moment because market is slightly overbought. A technical correction of INR 6,000-INR 7,000 can't be ignored before making new highs," said Ajay Kedia, director at Kedia Advisory.

 

Trump has reiterated the imposition of reciprocal tariffs from Apr. 2, under which, the US plans to mirror the duties imposed by other nations. "Once the fine print (of the reciprocal tariffs) comes out, irrespective of the outcome, there will be massive profit taking. It is like 'buy on rumour and sell on news'," said Gnanasekar Thiagarajan, director of Commtrendz Research. The strength in gold prices will continue till the first week of April, Thiagarajan said.

 

From a technical perspective, gold's recent breakout past $2,930 signals continued bullish momentum. However, with the Relative Strength Index nearing overbought territory, a brief consolidation or pullback may occur in prices, Kedia Advisory said. Key support lies around $2,956, with deeper corrections possibly testing $2,930.  End

 

US$1 = INR 86.80

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Akul Nishant Akhoury

 

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