World gold price: Price increases but attractiveness gradually fades

Gold is often seen as a safe haven, but traders are hesitant to buy at the moment because of the potential for price volatility after the US election, according to an article published in the SCMP.

Gold prices near record highs, weighed down by global economic uncertainty and the upcoming US elections, are putting pressure on buying of the precious metal during India's most auspicious shopping season, traders said.

India, one of the world's largest gold consumers, typically sees a spike in demand on Dhanteras, which kicks off the Diwali festival of lights. This is the peak time for gold buying in the country, as it is believed to attract the blessings of the Goddess of Wealth.

Gold traders and jewellers in India estimated sales to be down 10-20% compared to last year's peak shopping period, according to interviews with This Week in Asia. "This year, purchases are definitely down compared to last year in terms of volume, although the value of sales is similar, " said TK Chandran, CEO of DKTM Jewellery Ltd, which operates about 50 showrooms across India. "Most people are saying that prices can only change after the US election," he added.

Analysts say the tight US presidential election between Donald Trump and Kamala Harris, set for November 5, means gold prices are likely to remain at current levels in the near term.

Spot gold prices hovered around $2,755.42 an ounce on Tuesday, close to last week's record high of $2,758.37.

Gold is often purchased as a hedge in times of uncertainty, and the outcome of the White House race is expected to significantly influence geopolitical conflicts, such as tensions in the Middle East and the Russia-Ukraine conflict.

Analysts noted that last Saturday’s Israeli attack on Iran, which avoided targeting oil facilities, temporarily calmed heightened sentiment around gold. However, a potential shift among investors looking to diversify away from the dollar ahead of the U.S. presidential election is keeping demand for the precious metal high, ANZ said in a report this week.

A Mumbai-based jeweler said the buying sentiment in India has changed dramatically since July, when the government reduced the import duty on gold from 15% to 6%. India meets almost all of its gold demand through imports, which make up the second largest part of the country’s import bill after crude oil. “ When import duties were cut, sales spiked. But the market has dropped 20-30% since the last three months,” said a senior executive at one of India’s leading jewelry chains, who did not want to be named.

The director said the drop in sales volume had negatively impacted the earnings of jewelry stores and merchants because their profit margins were very thin. Prices were unlikely to rise again from current levels, especially if tensions in the Middle East or the Russia-Ukraine conflict eased, he added.

Gold prices could rise if the US Federal Reserve cuts interest rates at its meeting in the first week of November. In September, it cut interest rates by 50 basis points, marking the first monetary policy easing in four years.

According to the CME FedWatch Tool, the market is pricing in a high probability of another 25 basis point rate cut. Lower interest rates reduce the opportunity cost of holding gold.

Gold prices typically move inversely to the US dollar because the precious metal is priced in the currency internationally. A stronger US dollar tends to lower gold prices and vice versa.

Focus on Fed rate cuts

Analysts say the Fed could stop cutting interest rates if Mr Trump wins, as he has pledged to cut taxes, thereby increasing the deficit, as well as impose inflationary tariffs on imports.

Global investors will be closely watching whether the Fed cuts interest rates again in the coming period, said Gnanasekhar Thiagarajan, founder of CommTrendz Research.

Demand for physical gold during traditional peak buying periods may decline, not only because of high prices but also because consumers are diversifying their investments into alternatives such as government bonds and exchange-traded funds.

But one bright spot for the market is that Indian investors have surplus cash after a record rally in the stock market over the past few months.

Mr. Thiagarajan also said the gold rally could “fizzle out” after the U.S. election, once any uncertainty surrounding the outcome is resolved. He said there are also expectations that geopolitical tensions in the Middle East and the Russia-Ukraine conflict could begin to ease in the coming months.

Source: https://baoquocte.vn/gia-vang-the-gioi-gia-tang-nhung-suc-hap-dan-mat-dan-nha-dau-tu-co-nen-tiep-tuc-om-291870.html