Four-month low gold rates today – Is now the time to buy amid potential US Fed rate cut due to cooling inflation?

Gold rate today: Following the sluggish demand for physical gold in China, gold prices witnessed strong selling last week. COMEX gold lost around 4.50 percent last week, whereas, in India, the downside in the yellow metal price was deeper due to the price adjustment after the announcement of a customs duty cut by 9 percent on gold and silver. Gold price in India crashed around 9 percent against its July 17th high of ₹74,731 per 10 gm on the Multi Commodity Exchange (MCX). However, some recovery in the yellow metal was witnessed on Friday after the US PCE inflation data.

According to commodity market experts, gold prices in India came under pressure after the announcement of a customs duty cut on gold and silver in the 2024 budget. The sluggish demand did the rest of the damage to the physical gold in China. This led to a sharp correction in gold prices across the globe. However, due to the price adjustment post-Budget 2024, selling in India was sharper than in other global markets. However, they expected a sharp rebound after Friday’s cooling US inflation data. Experts believe that US PCE inflation has bolstered the US Fed rate cut buzz in the upcoming September meeting of the US central bank.

Reasons for the Gold Price Decline

Speaking on the reasons that dragged gold prices southward, Anuj Gupta, Head of Commodity & Currency at HDFC Securities, said, “In domestic markets this week, gold prices fell to a four-month low and corrected more than 9.0% from the July 17th high of ₹74,731. The government’s reduction of basic customs duties on gold and silver from 15 percent to 6 percent is the primary cause of the fall. Apart from this, the international market gold prices corrected almost 4.50 percent from their recent peak due to a potential slowdown in seasonal demand for physical gold, reflecting a worry about the worsening recession in jewellery and retail investment demand, particularly in China.”

Impact of US Fed Rate Cut Speculations

Anuj Gupta said, expecting a rebound in gold prices after softer US PCE inflation data, “After the cooling US inflation data, the buzz for the US Fed rate cut in the September meeting has gone high. So, some relief rally can be expected in the bullion prices next week. However, a bullish trend can be assumed only when the COMEX gold price breaches above the $2,405 per troy ounce mark.” He said the COMEX gold price is supported at $2,345 per troy ounce.

“On MCX, today’s gold rate is supported at ₹66,300 per 10 gm, whereas it faces a hurdle at ₹69,945 per 10 gm. If either side of this range breaks, a bullish or bearish trend can be assumed in the yellow metal,” Gupta added.

Insight: Speculations regarding the US Fed rate cut in the upcoming meeting can greatly impact the direction of gold prices, as investors closely monitor economic data and central bank decisions for cues on potential market movements.

“There are two possible lines of defence for gold in the short term: $2360 and $2320. It is worth keeping a close eye on the price action around these levels. We should be prepared for a prolonged decline if gold breaks through them with a strong move. If the buyers manage to break the trend near one of these lines, the price may continue to rise on buyers’ encouragement,” the FxPro expert said.

Bull vs Bear Market

Bulls and bears are settled in the current market, Praveen Singh, Associate VP, Fundamental Currencies & Commodities at Sharekhan by BNP Paribas, said, “Softer-than-expected US PCE deflator inflation data may help the metal recoup some of its recent losses, though the metal is yet to be out of the woods unless Chinese demand improves or there is a clear possibility of multiple US Fed rate cuts.”

“Bears eye a test of $2300 level. The metal needs to reconquer the $2400 level to alleviate some of the huge selling pressure,” Praveen Singh said.

Disclaimer: The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.