Gold prices recently posted their highest monthly advance in January this year, after a stretch of 36 months. However, the yellow metal has erased all of its gains ,in the month of February. What lies ahead, will the bulls make a comeback or let the bears continue to stay in control of price action?
There are some major factors that will decide the fate of the prices in the short to medium term, which are worth a discussion at the moment.
First thing first , the trader fraternity is closely watching the developments from Greece where the new government is still in negotiations with the Eurozone leaders to buy some time, that might save it from a default on its debt and lead to its exit from Euro. In the absence of any timely negotiations or a scenario where it is forced out of the Eurozone , the yellow metal may see inflows on the back of its safe haven appeal, that can take the prices higher and vice versa. Meanwhile , if the Euro continues to decline against the dollar, the way it has been plunging in the recent past, it will make it all the more difficult for gold prices to hold ground.
Secondly, the recent ceasefire agreement between Ukraine and Russian separatists which has improved global risk appetite, is certainly not a welcome news for gold bulls .Last but not the least, the US Fed has raised the assessment of the US economy, and the recent data is also pointing towards further strength in the economy. Albeit, it has raised further bets of a rate hike by the Fed in the middle of the year, after they have maintained rates near zero since 2008, to stimulate the US economy. This could hurt the demand for bullion, being a non-interest-bearing asset. However, in the wake of the latest meeting minutes, it appears that the Fed is in no hurry to hike interest rates , considering the slowdown in Eurozone & Chinese economies, the inflation which is still well below its target. Also, the political tensions in the Middle East and Ukraine may refrain Fed from hiking rates sooner than later. This gives relief to the gold bulls, at least in the immediate short run.
The overall situation points out towards a cautious time for the gold prices in the coming months. However, physical buying at lower levels ,concerns about growth in the Euro zone and China primarily , and recent geo-political concerns, are expected to provide a floor to the prices. Moreover, Indian government’s stance about import duty on gold in the forthcoming budget will play a crucial role in deciding the fate of the yellow metal in domestic markets.