Gold hits US$3,000 oz Now what comes next?

 

Gold crossed in intra-day trading on Friday, 14 March 

“Gold crossed US$3,000/oz in intra-day trading during the early hours of Friday 14 March and then again on Monday 17 March. While the LBMA Gold Price PM hasn’t officially crossed the mark, setting at US$2,996.50/oz on Monday, it has nonetheless grabbed the attention of investors and media outlets around the world, triggering a myriad of questions about its significance” Taylor Burnette, Research Lead, Americas-World Gold Council (WGC). 

According to Dr. Renisha Chainani, Head - Research at Augmont as said in the Augmont Bullion Daily Report for March 18, “Gold continues its winning streak! Gold maintains its winning streak above $3025 (~Rs 88500) as Trump's tariffs are projected to exacerbate inflation and economic turmoil. Trump said he would hold Iran accountable for any strikes carried out by the Houthi group it supports in Yemen, as his administration escalated the largest US military operation in the Middle East since Trump came to the White House.  

Central banks' accumulation of gold reserves, inflation concerns, and rising demand after the pandemic have contributed to the surge in gold prices.  The Fed is expected to maintain its benchmark interest rate in the 4.25%-4.50% range after its two-day policy meeting on Wednesday.

Gold Apr Futures after achieving the $3000 (~Rs 88000) milestone, now is expected to extend this run up towards $3035 (~Rs 88800) and $3080 (~Rs 90000) in the coming weeks. 

After that, we can see some retracement and profit-booking, which can extend down to $2800 and $2700 maximum. While Silver May Futures has also climbed above $34(~Rs 100,000) on strong demand, the next resistance for the prices is $35(~Rs 103,000).”  

In the row, Colin Shah, MD, Kama Jewelry said, “Gold prices are trading at record highs globally in today’s trading session ahead of the US Fed policy meeting. MCX gold prices are trading at Rs 88,380, whereas Commex gold prices have hit a record high of $3,012/ounce. The key reasons supporting gold prices globally could be attributed to the expectations of further rate easing by the Fed. The accumulation of gold by RBI is another reason gold prices are kept elevated in the domestic market. Moreover, concerns over a severe economic fallout and aggressive tariff policies by the US are also some key drivers pushing gold prices upwards. 

Considering the global scenario, funds are increasingly moving to gold due to its safe haven feature, which provides a hedge against inflation and economic instabilities. We now expect gold prices to touch levels of $3100/oz internationally, and Rs 90,000/10gm domestically.”  

Now the million-dollar question is, What’s next? In the row, Taylor Burnette ink, “as the saying goes, even strong rallies need to catch their breath. Gold has remained, on average, above previous multiples of US$500/oz for nine days before pulling back. At the same time, however, gold has rebounded above the same level in just a few days four out of five times.  

From a technical and positioning standpoint, if gold were to remain above US$3,000/oz over the next couple of weeks, it would likely trigger additional buying from derivatives contracts. For example, we estimate there is roughly US$8bn in net delta-adjusted notional in options contracts from US gold ETFs that expire Friday 21 March,4 and US$16bn in options on futures that expire on 26 March. While this may create a slingshot effect, it could also trigger short-term-profit taking.  

In view of the speed of gold’s latest move, it would not be surprising to see some price consolidation. But despite potential short-term volatility, the most important determinant for gold’s next move is whether fundamentals can provide long-term support to its trend. As we discussed in our recent Gold Demand Trends, while price strength will likely create headwinds for gold jewellery demand, push recycling up and motivate some profit taking, there are many reasons to believe that investment demand will continue to be supported by a combination of geopolitical and geoeconomic uncertainty, rising inflation, lower rates and a weaker US dollar.”