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Informist, Friday, May 16, 2025

 

By Ashutosh Pati

 

MUMBAI – The bull run in gold is running out of steam as investors are switching to riskier assets amid easing geopolitical and global trade tensions, market participants said. They expect a consolidation in gold prices after the almost five-month-long rally as the precious metal's safe-haven appeal appears to be fizzling.

 

The trade accord between the US and China, ongoing peace talks between Russia and Ukraine, an easing in gold purchases by global central banks, and a cool-off in exchange-traded fund buying are expected to act as headwinds for the yellow metal in the short term, market participants said.

 

The US and China Monday agreed to suspend most of the retaliatory tariffs on goods imported from each other for 90 days, effective Wednesday. "While the truce lowered the risk of a recession, supporting a massive risk-on move across other assets--most notably the stock market--the news also helped send the USD (US dollars) higher against its major peers. A ceasefire between Pakistan and India, as well as intense focus on a Russia–Ukraine solution, also helped lower the geopolitical temperature, reducing the need for safe havens," Ole Hansen, head of commodity strategy at Saxo Bank, said in a note to clients. A stronger greenback would weigh on gold prices as the dollar-denominated precious metal becomes expensive for buyers holding other currencies.

 

If the peace talks between Russia and Ukraine are successful and the two countries agree to a ceasefire, it will be a huge boost for the global market, but the risk premium and the war premium in gold will fall, Deveya Gaglani, senior research analyst-commodities at Axis Securities, said. "I feel that the prices will trade with a negative bias for the short term," he said.

 

Further, during his visit to West Asia, US President Donald Trump said talks with Iran on a nuclear deal were possible and Syria and Yemen deserve a chance, which is seen as a huge step towards defusing the tensions in the region.

 

Ajay Kedia, director at Kedia Advisory, sees support for the June gold contract of the COMEX at $3,140-$2,970 per ounce and resistance at $3,380 per ounce. For the same-month contract on MCX, he sees support at INR 90,000 per 10 grams and resistance at INR 95,400 per 10 grams.

 

Manoj Jain, director at Prithvi Finmart, sees support for the June gold contract of the COMEX at $3,140-$3,080 per ounce and resistance at $3,330 per ounce. For the same-month contract on MCX, he sees support at INR 91,000- INR 89,000 per 10 grams and resistance at INR 94,000 per 10 grams.

 

At 1620 IST, gold was trading 0.7% lower at $3,203 per ounce on the COMEX and 0.9% lower at INR 92,341 per 10 grams on the domestic exchange.

 

Gold purchases by central banks and exchange-traded funds, which had emerged as major investors in gold in recent months, are easing, analysts at ING said. "Although central banks are still buying gold, the pace of purchases has slowed as prices hit record highs," Ewa Manthey, commodities strategist at ING, said in a report. In the first quarter of 2025, central banks bought 244 tonnes of gold, down 33% from the previous quarter, Manthey said.

 

The People's Bank of China has purchased gold for six consecutive months up to April, but the quantum has been steadily declining. The central bank bought 2.2 tonnes of gold in April, 2.8 tonnes in March, five tonnes each in January and February, and 10 tonnes in December.

 

Although global physically-backed gold ETFs saw their strongest monthly inflow in three years in April, Manthey said ETF buying has been cooling off since late April. "If these outflows continue, this could add further headwinds to gold," Manthey added.

 

In India, gold ETFs recorded net outflows for the second consecutive month in April as investors withdrew more money to book profits. Analysts expect the outflows to continue for the next couple of months. Gold ETFs saw net outflows of INR 772.1 million in March and INR 58.20 million in April, according to data released by the Association of Mutual Funds in India.

 

"... my major concern would be the gold ETF because in the first quarter gold ETF has seen inflow, but already, investors have got a return of around 40% in the last one year. Since 2022, a consistent 20% gain has been seen in gold prices. So we expect some kind of profit booking could be possible," Kedia said.

 

Apart from the easing in geopolitical tensions and the slowdown in investment demand, market participants remain concerned about the interest rate trajectory in the US, with Trump demanding lower interest rates. The US Federal Open Market Committee this month voted to keep the federal funds target rate range unchanged at 4.25-4.50% for the third straight meeting.

 

"... Federal Reserve Chair Jerome Powell cautioned that ongoing 'supply shocks' may compel the central bank to maintain higher interest rates for an extended period. He also indicated that policymakers are considering revisions to the core framework guiding monetary policy decisions," Kaynat Chainwala, assistant vice president-commodity research at Kotak Securities, said in a note.

 

Gaglani advised investors to allocate 7-10% of their portfolio to gold. Jain believes investors can allocate 15-20% of their portfolio to precious metals, adding that this is an opportunity for long-term investors to buy gold.  End

 

US$1 = INR 85.50

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

 

Edited by Saji George Titus

 

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