New Delhi [India], March 18 : If gold sustains its position above USD 3,000 per ounce in the coming weeks, additional buying could be triggered, particularly from derivatives contracts according to a report by the World Gold Council (WGC).
On Tuesday, gold hits USD 3,005.00 per ounce in the United States (US). Gold's recent rally has been remarkable, with prices surging from USD 2,500 to USD 3,000 in just 210 days.
This is a much faster increase compared to historical trends, where it has typically taken an average of 1,700 days for gold to rise in USD 500 increments.
The speed of this latest price movement highlights the strong momentum gold has built over the past two years, driven by a combination of market fundamentals and investor sentiment.
Market analysts caution that, despite gold's strong upward momentum, a period of consolidation is likely. Historically, gold has remained above previous USD 500 increments for an average of nine days before experiencing a brief pullback. However, in four out of five instances, gold rebounded above the same level within a few days.
Analysts estimate that approximately USD 8 billion in net delta-adjusted notional from US gold ETFs will expire on March 21, while another USD 16 billion in gold futures options will expire on March 26.
This could create a "slingshot effect," where gold prices experience a further surge due to increased buying activity. However, short-term profit-taking by investors could also introduce volatility in the market.
While short-term fluctuations are expected, the long-term outlook for gold remains positive says the WGC report. The key determinant of its future trajectory will be the persistence of global economic conditions that currently favour gold investment. If inflation remains elevated, interest rates stay low, and geopolitical risks continue to influence markets, gold is likely to maintain its strength.
One reason for the rapid ascent is that, unlike previous jumps where gold had to double in price to move from USD 500 to USD 1,000 per ounce, this recent increase only required a 20 per cent gain.
Since December 2005, when gold first reached USD 500 per ounce, it has increased nearly sixfold, delivering an annualized return of 9.7 per cent. For comparison, the S&P 500 spot index has grown at a rate of 8.2 per cent per year over the same period.
Several key factors are fuelling gold's ongoing rally. Geopolitical and economic uncertainties have heightened the demand for gold as a safe-haven asset.
Rising inflation, lower interest rates, and a weakening US dollar have further strengthened investor interest in gold. Historically, gold prices tend to rise during periods of economic uncertainty, and current global market conditions align with this trend.
Inflation concerns remain a major driver of gold's price surge. As the cost of goods and services rises, investors seek assets that can preserve their purchasing power.
Additionally, lower interest rates reduce the appeal of interest-bearing assets, making gold more attractive in comparison. The weakening US dollar also plays a role, as a lower dollar value makes gold cheaper for international buyers, increasing demand.
That said, high gold prices could create headwinds for gold jewellery demand, push recycling levels higher, and lead to some profit-taking among investors. However, these factors are unlikely to outweigh the broader economic and financial drivers supporting gold's long-term growth.
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