Inflation and Geo-Political Tensions Bring Gains in Gold Prices

Gold has maintained a broad range of US$ 1760 – US$ 1860. Whie it is technically still within the range, there are two factors that have provided some sheen to the yellow metal. The first factor is the inflationary situation prevailing in many large economies, and the second and probably more transient factor is the build up of Russia-Ukraine tensions. The move into safe haven may support gold for a while, but fundamentally the ability of gold to scale much higher levels remains muted. Gold demand trends from one of the major consumers like China was positive, whereas the demand from India was not very encouraging probably because of the last wave of covid in the month of Jan 22. ETFs overall saw a positive inflow after a gap of six months, though the inflow was to the tune of US$ 3 billion only. While the US and Europe remained positive in ETF inflows, Asia continued to be negative. While temporary factors may influence gold prices on the upside, the fundamental factors are still related to US Dollar interest rates, and the quantum of rate hikes or the number of hikes expected over the next one year.


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