Gold prices recently witnessed a correction of around 5 percent from their all-time high levels in May this year. From around Rs 62,000 levels, gold prices are currently trading at around Rs 59,000 per 10 grams on MCX exchange. The recent moves by the US Federal Reserve and the Reserve Bank of India (RBI) capped gains for gold, leading to softness in the prices.

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Globally, interest rates are near peak levels with the US Federal Reserve likely to start cutting interest rates from the end of the current calendar year. Historically, a decline in interest rates has a positive correlation with gold prices as it lowers the opportunity cost of holding gold.

As the outlook on gold prices remains positive, this minor correction is a good entry opportunity from a long term allocation perspective, said analysts at ICICI Direct Research.

"Investment in gold should always be considered from an asset allocation perspective as long period of sub-optimal returns and returns in a non-linear

pattern are an inherent feature of gold price movement," the brokerage said.

On allocation strategy, the analysts said: "We recommend 5-15 percent as the normal range of allocation to gold. Hence, investors may maintain around 5-10 percent allocation to gold."

"Moving forward, gold prices will be guided by the action of the central banks, US dollar index (DXY) a possible chance of a recession in the US, and the geopolitical situation between Russia-Ukraine and China-Taiwan. Expectations of global central banks easing rates from CY24 onwards will provide support to the yellow metal,” said Nish Bhatt, Founder & CEO at Millwood Kane International.

Spot gold

Spot gold prices edged higher on a weak dollar after another European Central Bank (ECB) rate hike. Also, poor economic data fuelled expectations of a less hawkish stance from the Fed in the future.

"Spot gold is expected to hold support near $1950 levels and rise further till $1975 amid weakness in the dollar and ahead of key economic data from the US," according to ICICI Direct Research.

Further, sluggish economic data from the US fuelled expectations among investors that Fed is near the end of its rate hike crusade. MCX gold is likely to move north towards Rs 59650 levels as long as it stays above Rs 59250, the analysts noted.

First Published:Jun 18, 2023 8:29 PM IST