The year started on a positive note for bullion, but gains for gold were eroded in March as risk-on sentiment started to catch up after the US Federal Reserve hinted to take a pause on raising rates.

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We expect that slower global growth, rising uncertainty and central bank buying will continue to extend gains for the gold. Investment demand is also picking up that would broadly elevate buying in the funds and ETFs.

Domestic prices are still better-off when compared to international prices as the rupee since the start of the year has marginally come under pressure thereby keeping domestic prices elevated.

Akshaya Tritiya continues to remain an auspicious day for buying gold and on an average in the last 10 years, we have observed that gold has given a return of 8 percent per annum.

We believe that despite a lacklustre performance in a few years, one will make good returns, as on a macro level major economies could witness some slowdown thereby attracting buying for the metal.

The Federal Reserve, in line with expectation, held rates unchanged and signalled little appetite to adjust them any time soon. But for now, the Fed chairman said low inflation allows the central bank to be “patient” in deciding on any further changes to its overnight benchmark lending rate.

On the contrary, if the economic numbers hint towards recovery there are chances of rate hike too, but which at this point of time seems unlikely. Likewise, ECB also backtracked its plans to tighten its policy this year.

On one side, the central banks are staying on guard with the increasing worries of economic slowdown, on the other hand, the economic number do not converge with its policy statement.

In this year, we expect gold to trade with a positive bias with immediate resistance close to Rs 32,500 and a break above this level could take it higher towards Rs 35,000 level and eventually in the next couple of years we expect it to head towards Rs 40,000. One can start investing at current levels and look to average on the downside till Rs 30,600 level is held on.

Gold Performance (YoY as per Akshaya Tritiya)

Navneet Damani is vice president – Commodity Research at Motilal Oswal Financial Services Ltd.

First Published:May 3, 2019 3:20 PM IST