Spot gold at record high of ₹66,795; here's why

The price of spot gold hit a record high of ₹66,795/gm on the Multi Commodity Exchange (MCX) on March 21, triggered by the US Fed's decision to keep the interest rate unchanged.

"The Fed in its latest policy decision kept its key interest rate unchanged and signalled that it remains on track to cut interest rates by 75 basis points in 2024, easing market concerns of fewer rate cuts amid recent data showing sticky inflation. Markets are now pricing in a greater chance, around 70%, that the Fed will begin cutting interest rates at the June policy meeting, up from 55% before the Fed policy. The US Dollar declined, and international gold prices touched new highs in response to this dovish hold. While the fundamental backdrop of lower interest rates and geopolitical uncertainty looks supportive for gold, some profit-taking can be done at these levels. Fresh buys can wait for price dips," says Ghazal Jain Fund Manager- Alternative Investments, Quantum AMC.

Analysts, however, expect the gold prices to further touch ₹67,450-$67,900. "We see some sign of caution as well - as their projection shows an upward revision in economic growth to 2%, core-PCE inflation at 2.6% and an unemployment rate of 4% by year-end, which would make their rate cut task a little difficult. Technically, Although we still maintain a positive in Gold, but do expect some profit-booking, which can give us the opportunity to enter at the lower level. Support levels are around 66000 and next at 65180, while prices do have some upside potential and can hit 67450-67900," says Pranav Mer, Vice President, EBG - Commodity & Currency Research, JM Financial Services Ltd.

Following an increase in spot gold prices, shares of Manappuram Finance and Muthoot Finance surged as much as 6%. The share price of Manappuram Finance surged by 3.48% to hit an intraday high of ₹172.30 apiece on the BSE. This was in line with the broader BSE Sensex, which was trading 588.17 points or 0.80% higher at 72,689.86.

On the other hand, the share price of Muthoot Finance surged as much as 6.05% to hit an intraday high of ₹1,419.80 apiece on the BSE.

Notably, the gold prices in the international market reached $2,200/oz in the first week of March, as per the World Gold Council. WGC, in its report on March 19, explained the rally in gold price to weakness of US dollars, a decline in US treasury yields, an increase in market volatility, weak US economic data print and other factors such as technicals and over-the-counter activity.

Impact on domestic consumption

Explaining the rally in gold prices over the past few weeks, Kavita Chacko, Research Head, World Gold Council said that “the price increase can, in part, be explained by the weakness in USD, a decline in US treasury yields, an increase in market volatility, weak US economic data price and other factors such as ‘technicals’ and over-the-counter activity.  

According to Chacko, owing to an increase in gold prices, the demand for gold jewellery in the domestic market will remain subdued. On the other hand, higher prices could encourage investment in gold-linked financial products.