Gold price outlook: Government debt has turned out to be a more attractive bet for investors of late

Gold tumbled to an eight-month low and posted its worst month since November 2016 as a stronger dollar and elevated US Treasury yields hammered non-yielding bullion’s appeal. US Treasury yields have risen more than 50 basis points so far this year, eroding gold’s status as an inflation hedge since that translates into higher opportunity costs to hold bullion.

MCX Gold prices have an immediate strong support around Rs 45200 level. As long as it sustains above this level we may see a bounce towards Rs 48000 level in coming weeks: Reuters

Gold tumbled to an eight-month low and posted its worst month since November 2016 as a stronger dollar and elevated US Treasury yields hammered non-yielding bullion’s appeal. US Treasury yields have risen more than 50 basis points so far this year, eroding gold’s status as an inflation hedge since that translates into higher opportunity costs to hold bullion. While gold often benefits from expectations of more stimulus measures, given its status as an inflation hedge, government debt has turned out to be a more attractive bet for investors of late since bullion does not pay any fixed interest.

Holdings in the world's largest gold-backed ETF, SPDR Gold Trust, also fell to their lowest since May 2020. MCX Gold prices have an immediate strong support around Rs 45200 level. As long as it sustains above this level we may see a bounce towards Rs 48000 level in coming weeks as recent risk-off sentiments may revive safe haven bets for bullion along with upcoming announcements of the further stimulus measures by the newly elected US government may support gold as perfect hedge against possible inflation.

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Silver prices corrected slightly in the last month after rallying strongly in the previous two months with an influx of fresh interest, following a brief spike in spot prices triggered by a retail frenzy in the last month, with investors also betting on a further upside this year from industrial demand. The gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, fell to its lowest since August 2014.

ICICI Securities expect silver prices to resume their rally from current levels towards Rs 74000 as improved demand from Silver ETFs along with industrial demand from silver dependent green technologies such as solar panels and electronics are expected to increase in the medium term.

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