Gold price approaches Rs 1 lakh mark: Key factors behind the yellow metal rally

Gold prices in India approached the Rs 1 lakh mark on Thursday as investors seek refuge in the yellow metal amid rising geopolitical tensions in the Middle East and expectations of a US Federal Reserve rate cut. On Thursday, spot gold rose by 0.7% to reach $3,375.06 per ounce, while US gold futures increased by 1.5% to $3,395 per ounce. The weakening of the US dollar has enhanced gold's appeal, as the dollar index slipped to a two-month low.

In India, 24-karat gold prices reached Rs 99,280 per 10 grams. The persistent geopolitical tensions, particularly due to US-Iran relations and potential military actions by Israel, have amplified gold's status as a safe-haven asset.

Concurrently, the US Consumer Price Index (CPI) reported a rise of 0.1% in May, falling short of the expected 0.2% increase, and year-on-year inflation stood at 2.5%, reinforcing the likelihood of monetary easing. Investors are closely watching these developments as they navigate the financial landscape. The ongoing market dynamics have kept traders on edge, with many looking for cues from central banks.

This accumulation by central banks highlights their strategic approach to safeguarding against economic uncertainties, reflecting a broader trend of risk aversion.

Manav Modi, Senior Analyst, Commodity Research at Motilal Oswal Financial Services asid, "Gold prices rose on the back of cooler-than-expected U.S. inflation numbers, strengthening investor expectations that the Federal Reserve would start cutting interest rates by September. Traders are currently pricing in a 68% chance of an interest-rate cut by the U.S. central bank in September, according to the CME FedWatch tool. Meanwhile, US officials mentioned that Israel could be ready to launch an operation in Iran, increasing the geo-political tensions. Focus now shifts to US PPI data scheduled later in the day."

Aksha Kamboj, Vice President, India Bullion and Jewellers Association and Executive Chairperson, Aspect Global Ventures said, "Gold prices have rebounded from recent lows amid rising geopolitical tensions between the US and Iran in the Middle East, as well as ongoing uncertainty surrounding the details of the US-China trade agreement. These developments have overshadowed a positive US inflation report, reducing expectations of an interest rate cut by the Federal Reserve. Additionally, any further escalation in the Middle East, particularly if nuclear negotiations between the US and Iran collapse, could push gold prices back toward record highs."

Market analysts are anticipating that gold will remain firm, supported by expectations of a US rate cut, with markets now pricing in a 68% probability of such a cut by September.

As global risks remain in focus and technical indicators suggest further upside potential if gold holds above key resistance levels, the outlook for gold remains positive. Analysts are keenly observing these trends, as they could signal a longer-term shift in market dynamics. The interplay between geopolitical events and monetary policy continues to be a significant driver for gold prices.