Gold faces price pressures: Motilal Oswal recommends ’Buy on Dips’ with ₹76,000 target

Domestic brokerage house Motilal Oswal Financial Services (MOFSL) has maintained a ‘Buy on Dips’ stance for gold, projecting domestic prices to potentially reach ₹76,000, with current support at ₹69,500. On the global stage, MOFSL expects COMEX gold to find support at $2,430, aiming for a target of $2,650.

In its latest analysis, MOFSL highlights the resilience of the gold market in 2024, despite notable volatility driven by geopolitical tensions, economic uncertainties, and shifting monetary policies. The year saw a strong initial rally in gold prices, propelled by heightened demand for safe-haven assets amid ongoing conflicts in Ukraine and the Middle East. These geopolitical risks have traditionally supported gold, and their persistent nature suggests the continued importance of the yellow metal as a safe haven. Additionally, uncertainties surrounding the upcoming US Presidential elections could further impact bullion volatility.

However, the gold market faces negative pressures including a 9 per cent reduction in India's gold import duty, the unwinding of Yen carry trades, and speculative profit-taking. These factors have contributed to price pressures, with gold's performance closely linked to fluctuations in the Dollar Index, US Treasury yields, and global monetary policies.

Navneet Damani, Group Senior VP – Commodity Research at MOFSL, noted, “Central bank gold purchases slowed in Q2, decreased by 39 per cent quarter-on-quarter to 183 tonnes. Despite this decline, purchases remained robust, exceeding the five-year quarterly average of 179 tonnes and continuing the positive long-term demand trend. Expectations of a more accommodative monetary policy could further enhance gold's appeal. Central bank buying, particularly by emerging markets diversifying reserves, continues to support gold's future outlook. Domestic demand in key markets like India remains strong, bolstered by reduced import duties and favourable economic policies. Additionally, anticipated interest rate cuts, geopolitical tensions, and unforeseen events could further propel prices.”

Central Banks’ Dilemma and Gold Prices

Central banks have significantly influenced gold prices through their monetary policies, particularly in response to changing economic conditions. Since 2022, major central banks have collectively raised interest rates by over 1,600 basis points in a bid to control high inflation and stabilise their economies. This aggressive tightening cycle was a response to inflationary pressures from the COVID-19 pandemic and subsequent supply chain disruptions.

Despite these rate hikes, the Federal Reserve has paused on cutting rates, weighing the benefits of rate reductions against risks of accelerating inflation or destabilizing economic growth. The mixed economic signals and ongoing uncertainties contribute to a cautious approach.

In summary, while the precious commodity faces price pressures from various factors, its long-term outlook remains positive due to strong domestic and global demand, central bank purchases, and anticipated economic shifts. Investors should consider buying on dips, with domestic targets of ₹76,000 and global targets of $2,650 offering potential upsides amid current market volatility.

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