Gold prices moved up from the US$ 2050 base, where it was hovering around for a long time, to a new range mainly due to the tensions that emerged in the Middle East, and also on the back of the Fed stance in relation to the policy rate. The initial period of the rise in prices, was facilitated by two factors. The first factor was the geo-political tensions that arose in the Middle East which seemed to be snowballing into a wider global conflict. But it has de-escalated to the comfort of the markets, though the potential for a further local face-off between Israel and the non-state actors like Hamas or Hezbollah cannot be ruled out. But what provided the steam for the locomotive was the speculations around an impending cut in the Fed Funds Rate. But this factor also got diluted to a large extent as the incoming data supported the thesis that inflation was still high and better inflation performance was required for the Fed to consider any rate cut. While gold may still continue to be resisted at the current levels close to US$2370 – US$2390, the probability of any deeper corrections looks weak due to central bank demand and retail demand. The central bank demand in the last two years was more or less at the same level. But that the demand is regularly coming into the markets help sustain prices. Gold may be able to sustain at higher levels only if the Fed cuts rates, and the US$ starts declining against currency majors. It is also true that in the recent upmove quite a bit of this anticipated currency decline is already priced in.
