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Gold loses its sheen due to stronger dollar

by Prathamesh Mallya (AVP- Research, Non-Agri Commodities, and Currencies, Angel One Ltd)
May 21, 2023
Gold loses its sheen due to stronger dollar, Market, KonexioNetwork.com

Gold prices have declined from $2080 /ounce (4th May 2023) to around $1989$ per ounce as on 17th May 2023. On the MCX, gold prices have fallen in the same direction and corrected from Rs.62000/10 gms to around Rs.60927/10 gms in the same time frame.

Gold prices have lost its sheen in the recent weeks on account of hawkish remarks from the US Federal Reserve officials stating that the interest rate cuts might take a pause for the time being apart from underlying strength in the economic data sets in the recent weeks.

U.S. retail sales increased less than expected in April, but the underlying trend was solid, suggesting that consumer spending likely remained strong early in the second quarter, despite growing risks of a recession this year.  The rise in retail sales added to strong job growth in April suggesting that the economy was experiencing a spring revival after activity slowed in February and March. Spending is being underpinned by strong wage gains thanks to a tight labor market.

Moving forward, the strength in the economy can be reflected in the GDP numbers. The economy grew at a 1.1% annualized rate last quarter. The Atlanta Fed is currently estimating GDP rising at a 2.7% pace in the second quarter. 

The strength in the US economy, rising dollar, and the strength in the recent economic data sets indicate that gold prices might further correct in the coming weeks. We expect gold prices in the international markets to move lower towards $1940 mark ( CMP: $1988/0z) in the near term and MCX gold prices to move lower towards Rs.59000/10 ( CMP: 60200/10 gms) mark in the same time frame.