Gold prices faced downward pressure on Monday, sliding by 0.28% to settle at ₹76,653 per 10 grams. The decline came amid a stronger U.S. dollar and rising Treasury yields, which kept investors cautious ahead of key economic events. Market participants are particularly focused on the Federal Reserve’s upcoming interest rate decision, which is expected to set the tone for monetary policy in 2024.
With a 25 basis point (bps) rate cut largely priced in for this week, the outlook for further reductions appears limited. The probability of additional rate cuts in January 2024 is seen as low, with CME’s FedWatch tool indicating just a 17% chance of further easing. This cautious approach to monetary policy has caused some unease in the gold market, as the precious metal tends to underperform in a rising interest rate environment due to its lack of yield.
Investor Focus Shifts to U.S. Economic Data
As gold prices dipped, investors kept a close eye on upcoming U.S. data, particularly the GDP and inflation reports set for release later this week. These key indicators are expected to provide crucial insights into the health of the U.S. economy and the Federal Reserve’s future monetary policy. A stronger-than-expected GDP report or higher inflation figures could prompt the Fed to reconsider its stance on rate cuts, potentially adding further pressure on gold prices.
Despite the current weakness in gold, market watchers are anticipating a continued cautious approach from the Fed, especially after recent signals indicating that the central bank intends to proceed slowly with rate cuts. This uncertainty has contributed to the volatility in the gold market, as traders attempt to gauge the Fed’s future moves.
India’s Gold Imports to Decline After Record November Surge
India, one of the largest consumers of gold, saw a sharp spike in imports during November, but analysts are forecasting a significant decline in December. The rise in gold prices during the wedding season has already started to curtail demand, leading to widening discounts in the domestic market. The gap between domestic prices and international rates grew to $9 per ounce in India, the highest in more than two months, reflecting a slowdown in buying activity as gold became less affordable.
The situation in India mirrors trends in other parts of Asia. In China, discounts on gold ranged from $19.4 to $25 per ounce, suggesting weaker demand from one of the world’s largest gold markets. Similarly, other key Asian hubs, such as Singapore and Hong Kong, reported moderate premiums, indicating that demand across the region is showing signs of cooling.
Despite these developments, India’s gold imports have surged over the past year, with the country expected to remain a key player in global gold demand. However, as December unfolds, the anticipated drop in imports could lead to a slowdown in the overall market momentum.
Surge in Central Bank Gold Demand
While consumer demand for gold has softened in some regions, central banks have significantly increased their gold purchases in recent months. According to the World Gold Council (WGC), central banks globally bought a net 60 tons of gold in October 2024, marking the highest monthly purchase volume of the year. India was the largest buyer during this period, adding 27 tons of gold to its reserves, bringing its total gold purchases for the year to 77 tons — a five-fold increase compared to 2023.
Other countries such as Turkey and Poland have also contributed to the surge in central bank demand, adding substantial amounts of gold to their reserves. This trend reflects a broader shift toward gold as a safe-haven asset amid rising geopolitical tensions and the potential for economic instability.
The WGC’s report highlighted that global gold demand, excluding over-the-counter (OTC) trading, remained stable at 1,176.5 metric tons in the third quarter of 2024. This stability was driven by higher investment inflows, despite weaker demand for gold jewelry, which has traditionally been one of the largest segments of global gold consumption.
Gold Market Faces Long Liquidation
The gold market also experienced long liquidation, with open interest falling by 0.18% to 12,857 contracts. This indicates that traders who had previously taken long positions in gold are beginning to unwind their bets, likely in response to the stronger U.S. dollar and the Fed’s tightening monetary policy. Long liquidation tends to exacerbate downward price movements, as traders exit their positions, further increasing supply in the market.
At present, the gold market has established support at ₹76,485 per 10 grams. Should prices breach this level, there could be further downside potential, with ₹76,310 emerging as the next key support level. On the upside, resistance is seen at ₹76,915, and a sustained break above this could push prices toward ₹77,170, contingent on the outcome of upcoming U.S. data and the Federal Reserve’s decisions.
Outlook for Gold: Will the Downtrend Continue?
Looking ahead, the outlook for gold largely depends on the direction of the U.S. dollar, Treasury yields, and the Federal Reserve’s monetary policy stance. As the Fed signals a slower pace of rate cuts, gold may continue to face headwinds, as higher interest rates reduce the opportunity cost of holding the non-yielding asset. However, any unexpected economic data—such as stronger inflation or GDP growth—could lead to shifts in market expectations, potentially causing further volatility in gold prices.
The discounting trend in India and China suggests that gold demand may be weakening in some of the world’s largest markets, but central bank buying remains a positive factor for the precious metal. With geopolitical risks, inflation concerns, and economic uncertainties continuing to persist, central banks may continue to add gold to their reserves, supporting demand for the metal.
Key Factors to Watch
U.S. Economic Data: The upcoming GDP and inflation data from the U.S. will play a pivotal role in shaping expectations for the Federal Reserve’s monetary policy. A stronger-than-expected economic performance or rising inflation could prompt the Fed to reassess its rate cut plans, putting further pressure on gold prices.
Central Bank Demand: Central banks remain one of the key drivers of gold demand in 2024. Continued purchases by countries like India, Turkey, and Poland could provide support to gold prices, even if consumer demand in traditional markets weakens.
Gold’s Technical Levels: Technically, the gold market remains in a fragile position. Traders will be watching key support and resistance levels closely, with any breaches potentially leading to further volatility. ₹76,485 and ₹76,310 on the downside, and ₹76,915 and ₹77,170 on the upside, will be key levels to monitor.
Conclusion: A Mixed Outlook for Gold
As we head into the final weeks of 2024, gold’s trajectory is shaped by a mix of factors. While the market faces short-term challenges, including a firmer U.S. dollar, rising Treasury yields, and a cautious Fed, central bank demand and longer-term inflation concerns continue to provide support for the precious metal. Investors will need to stay alert to the evolving macroeconomic landscape, as key economic data in the U.S. and central bank actions could significantly impact the price of gold in the coming months.