Due to a strong U.S. currency and a spike in Treasury yields, gold prices on the important London spot market fell to their lowest point in six months. Demand for U.S. assets grew as investors anticipated interest rates would rise for an extended period. In spite of the weaker Indian Rupee, domestic gold prices fell to Rs 57500 per ten grams, the lowest level since March 2023, mirroring the pattern with the most active MCX futures. This year’s gold price got off to a strong start, rising more than 13 percent in the first five months. It has since held in a narrow range, and last week it broke through the strong support area of $1880 per ounce.
Real interest rates have recently acted as the main driver of gold prices. While gold appears to be a good long-term investment, it typically offers no return in the very short term. By offering higher real returns through the purchase of government bonds and currencies, short-term investors are drawn to these assets, making gold less alluring overall. As a safe-haven asset, gold is also frequently regarded. Whenever the economy or markets are in turmoil, investors frequently turn to gold.
When the dollar is strong, it may be an indication that investors are becoming more confident in the health of the American economy and financial system, which could encourage them to invest in riskier assets rather than safe-haven ones like bonds and equities. Gold-backed ETF and related product holdings reached multi-year lows. In order to show the investors’ desire to keep their money in gold, EFT flows are used. The largest gold-backed Exchange Traded Fund in the world, SPDR Gold Trust, recently saw a reduction in its holdings that has been four years in the making, indicating a decline in investor interest in the metal.
Future pressure on gold from real U.S. interest rates is expected, but any price declines would be constrained by expectations of strong physical demand from China and India. Gold bars and coins saw an increase of about 30% throughout the nation during the first half of the year. The second-largest consumer of gold, India, may increase domestic demand and sustain prices as the major demand season has not yet begun in that country.
