Wait for lower interest rates, says US Fed; gold hits all-time high

The price of gold rose to an all-time high of $2,301.21 an ounce following Federal Reserve Chair Jerome Powell’s assertion that bringing down interest rates “at some point this year” was a likely course of action to take. The jump in bullion reflects a 0.9 per cent increase, and comes in the wake of Powell’s Wednesday speech at Stanford University, California. The price rise, however, seems unlikely to affect gold import into India.

In his speech, Powell indicated policymakers would wait for lower inflation rates before slashing interest rates. Lower rates are seen as a positive sign for gold buying because it means no interest is paid. In 2024, gold has already escalated over 10 per cent, setting new records.

India has traditionally been a big market for gold, marked by the demand for soft jewellery and irrespective of price rise. According to the World Gold Council website, gold imports into India increased phenomenally in February — at 134 per cent annually and 222 per cent on a sequential basis. The total gold import in February stood at US$6.1 billion. This followed a three-month slump and marked the highest figures since last October. Gold import in February was around over 90t in volume, and the upward swing can perhaps be accounted to the wedding season, besides dealers and manufacturers stocking up ahead of the Lok Sabha polls. In terms of forex reserves, gold accounted for 7.7 per cent by February-end.

The significance of gold as a safe haven asset has also increased owing to global tension in the wake of political and military unrests in Ukraine and the Middle East. New data from the World Gold Council indicates central banks have been boosting their gold holdings in February, although the rate are sluggish.

Despite its current record run, investors who prefer exposure to the metal through physically backed exchange-traded funds have so far been wary. The latest 0.9 per cent rise, which saw gold settle at $2,300 an ounce in New York, is paralleled by the fact that its 14-day relative strength index stood at 83, above the 70-level. This might have deterred investors who feel the increase in bullion prices is too sudden.

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