Comex gold surged more than 1 percent to trade near $1,960/oz after hitting a high of $1974.7/oz, a new record. MCX August gold contract had hit a high of Rs 52,220 per 10 gram on July 27, the highest on record.
Gold has been on an upward move for the last few days but the momentum intensified after it broke past $1,900 level. Gold is being supported by a weak US dollar, rising virus cases, increased US-China tensions, ETF inflows and hopes of additional stimulus measures.
The US dollar index is near two-year low amid increasing concerns about the health of the economy and positioning ahead of Fed meeting. The Fed is expected to keep monetary policy unchanged but may maintain a dovish stance amid increasing challenges facing the US economy amid rise in virus cases.
Virus cases are rising globally and more restrictions are being put in place to limit the spread, the latest is the UK calling for quarantine of travellers from Spain.
US-China tensions have been simmering for few weeks but market players got worried after both sides took retaliatory steps as was reflected in the closure of consulates in Houston and Chengdu.
ETF investors have continued to put money in gold amid increasing challenges to the global economy.
Gold holdings with SPDR ETF rose by 5.84 tonnes to 1234.649 tonnes on July 27, the highest since March 2013. While gold has been edging higher, the latest leg of rally has been triggered by EU leaders approving a 750-billion-euro recovery plan.
Focus now is on additional stimulus measures in the US as some of the unemployment benefits expire this month. A Reuters report said, Senate Republicans on July 27 proposed a $1-trillion coronavirus aid package hammered with the White House, paving the way for talks with Democrats.
While there is spate of positive factors for gold, the sharp rise in a short span reflects that most of the rise could be due to momentum buying and huge investor inflows.
With the previous record high set in 2011 overhauled, market players are now eyeing the next milestone of $2,000.
While the momentum is still positive, we recommend some caution in buying aggressively at current levels, as there is a good possibility of some position squaring around Fed decision.
Comex silver has surged over 6 percent to trade near $ 26/oz and hit a high of $ 26.225, the highest since April 2013.
Silver has rallied on back of sustained rally in gold prices. With gold near record high, some buying may have shifted to silver, which is cheaper but has a strong positive correlation with the yellow metal.
Gains in industrial metals have also lent support to silver. Commodities, at large, have benefitted from continuing decline in the dollar and hopes of additional stimulus measures. The sharp rise in silver price has, however, pushed investors to sidelines.
Silver holdings with iShares ETF were unchanged for a second day at 17379.98 tonnes, a record high level. Silver may continue to trade higher unless there is a significant correction in gold price however slowing ETF buying calls for some caution at buying aggressively at elevated levels.
(The author is VP- Head Commodity Research at Kotak Securities.)Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.