Vijay Valecha, Chief Investment Officer, Century Financial
The metal slumped the most in a month yesterday and was hovering close to its lowest point this year near $1810 after Chair Powell’s hawkish remarks prompted a shift in expectations toward a larger interest rate hike than previously anticipated. Powell stated that the US central bank is likely to increase interest rates by more than what was previously thought and is prepared to accelerate the pace of these hikes if the economic data justifies it. Consequently, the market is now expecting a 50-bps hike instead of the previously expected 25-bps move at the Fed’s next policy meeting on March 22. This has resulted in a surge in the dollar and treasury yields, which has put pressure on the yellow metal. As the metal doesn’t offer any interest and is denominated in dollars, any rise in interest rates puts downward pressure on the metal, while an increase in the dollar’s value makes the metal more expensive in other currencies. Recent data indicates that total holdings in gold-backed ETFs have declined for seven consecutive days, falling from 92.72 million on February 27, 2023, to 91.84 million on March 7, 2023.
Reflecting the fall in the international markets, 22k gold prices fell to Dh 203 overnight from Dh 205.75 creating an opportunity for domestic and tourist shoppers in the UAE to make a few purchases. Going by the trends in the past, prices around Dh 200 per gram tend to trigger a rush of buyers and should provide a boost to the gold retailers. Additionally, with the wedding season underway and Akshay Tritiya approaching next month, any drop in gold prices is likely to attract shoppers.
Meanwhile, China increased its gold reserves for the fourth consecutive month in February, following the lead of other central banks in raising their holdings. Reopening demand for jewelry and technology in China may provide the necessary support for gold and prevent significant losses. However, investors should monitor critical levels at $1800 and $1778, as they correspond to the 100- and 200-day moving averages, respectively. These levels should act as strong support, however, a break below these levels could trigger further pressure for the non-yielding metal with the next support seen between $1730-$1760.