Gold prices were flat on Monday, May 29. On the Multi Commodity Exchange (MCX), gold futures were trading at Rs 55,550 per 10 grams, unchanged from Sunday's number. Globally, gold prices edged lower as a tentative deal sealed over the weekend to suspend the US debt ceiling coupled with jitters around higher-for-longer interest rates dampened demand for the non-yielding metal.

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Spot gold was down 0.1 percent at $1,944.09 per ounce by 0252 GMT, hovering near two-month lows hit on Friday. US gold futures were listless at $1,943.30, according to news agency Reuters.

The trigger

Hurting gold's appeal as a safe-haven asset, US President Joe Biden said on Sunday he had finalised a budget agreement with House Speaker Kevin McCarthy to suspend the $31.4 trillion debt ceiling until January 1, 2025 and that the deal was ready to move to Congress for a vote. Moreover, data on Friday showed US consumer spending increased more than expected in April and that inflation accelerated.

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Gold, which offers no yield of its own, tends to fall out of favour among investors when interest rates rise. The dollar index was firm and made bullion more expensive for holders of other currencies, as per Reuters.

In the week gone by, the yellow metal continued the decline, as it slipped over 1 percent. Prices fell as a result of hawkish comments from two US Federal Reserve officials, as investors sought more clarity on US debt ceiling negotiations.

"Bullion was trading near one-and-a-half month lows reached last week, as rising interest rates increase the opportunity cost of holding non-interest-bearing gold. The minutes of the most recent US Federal Reserve meeting suggested that the rate-hike campaign will most likely pause in June. In response to the mounting risk of a US government default, the dollar's strength, which reached two-month highs, curtailed some safe-haven flows into bullion. Gold plummeted to its lowest level in two months as a result of the ongoing downturn," said Prathamesh Mallya, DVP Research, Non-Agro Commodities & Currency at Angel One Ltd.

The outlook

According to Mallya, the upside for gold has been limited by the US dollar's advance to two-month highs, and prices are anticipated to stay under pressure.

Experts say that MCX Gold August future have supports at Rs 59,240/58,700 per 10 gm and resistances at Rs 60,300/60750 per 10 gm.

Investment strategy

Experts think that gold is somewhat overvalued at the current level. However, yellow metal is considered a store of value and a hedge against inflation, so its value can fluctuate depending on a variety of economic and political factors.

For diversification purposes, one can still invest in gold. The long-standing rule now should be to keep gold at 5 percent to 10 percent in an investment portfolio.

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