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Here is why gold prices have been fluctuating

As COVID vaccinations raise hope, gold appears less lucrative than US treasury bonds


A slight hike in the gold prices trading at MCX, at Rs 46,340 per 10 gram, came after rates slide to an eight-month low of Rs 45,861 on Friday. However, many analysts feel that they may go down further.

Last week gold and silver prices had gone down at the global market and had even led to a fall in the domestic prices in India too, in turn increasing demand in India.

Globally gold prices had also edged a bit higher to recover from an over seven month low touched in the previous session as the dollar weakened, although higher U.S. Treasury yields capped bullion gains. Demand for gold in India last week surged as local prices dropped to their lowest levels since June last year, with buying expected to pick up in other Asian centers after the Chinese Lunar New Year holiday week. 

“Gold futures traded marginally better late in the last couple of sessions, recovering from more than a seven-month low reached earlier in the day. The potential reversal indicates that value investors could be coming in with a longer-term support area currently straddling the market," says Kshitij Purohit, Product Manager, Currency and Commodities, CapitalVia Global Research Limited. 

"Gold prices rebounded from the lows of the session, but the week ended with a down percentage. Prices slipped through trend line support during the week and were ready to test lower rates. Though the dollar went down, US long-term treasury yields went up and continued to weigh on the yellow metal. A lower U.S. dollar provided the lift that gold needed and prevented a wash-out to the downside and at the same time rising Treasury yields kept a lid on any major upside movement,” he added.

The gold prices had fallen to their lowest in nearly three months and headed for their worst week since the end of November, as recent strength in U.S. Treasury yields dented the non-yielding metal's appeal. Benchmark U.S. Treasury yields edged higher, having hit a near one-year peak earlier in the week. 

“All updates regarding the Covid-19 stimulus bill and vaccine for Covid-19 and the new variant are impacting the market sentiment. On the data front, U.S. jobless claims unexpectedly increased last week, raising the possibility of a second straight month of tepid job growth despite declining new Covid-19 infections. Market participants will keep an eye on the preliminary manufacturing and the service PMI data expected from major economies later in the day. Broader range on COMEX could be between $1755- 1782 and on the domestic front prices could hover in the range of Rs 45,700- 46,300,” observed Navneet Damani, Vice President, Commodities Research, Motilal Oswal Financial Services. 

Experts further point out that the gold prices had slipped below the crucial Rs 46,000/10gm level, to hit an eight month low. The rise in the US Treasury yield and stronger dollar, optimism of a larger economic stimulus package, and the vaccination drive have led to downside pressure on gold prices. 

“The rising treasury yield is indicative of a recovery in the US economy. The yellow metal has also lost investor's interest as the vaccination drive picks up pace. Going forward, risk of a second wave of cases, easy liquidity, and global economic recovery will guide gold prices,”said  Nish Bhatt, Founder and CEO, Millwood Kane International an investment consulting firm. 

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