Ravindra Rao
Gold, one of the few commodities to have performed well, so far, this year, is showing signs of exhaustion amid lack of fresh triggers.
If we look at spot gold, it has moved in a narrow range (high-low gap) of about $20 in last few days as against this month's average intraday movement of $32. Spot gold has slipped below $1,700 per troy ounce level for the last two sessions but has so far managed to close above that level.
On the coronavirus front, some improvement is being reported at some hotspots. More and more countries are working towards reopening their economies. Improvement in the situation has reduced gold's appeal as a safe-haven asset but market players are still nervous, as global cases have continued to rise at a fast pace and this has kept a floor to the gold price.
Reduced safe-haven buying has also pressurized the US dollar and this has also lent some support to the price.
Stability in financial markets has also given room to central banks to act and this has also brought a halt to gains in gold prices.
In line with market expectations, the US Federal Reserve kept interest rate unchanged at 0-0.25 percent on April 29.
However, the weaker economic readings and downbeat growth estimate highlight the intensity of the negative effect from the virus outbreak and this has kept expectations high that more measures may be considered.
US GDP fell 4.8 percent in Q1, beating market expectations of 4 percent decline. Fed Chairman Jerome Powell, in his post-meeting conference, warned that the health crisis could have a lasting impact on the economy.
FOMC statement also noted that the central bank was ready to use all tools and take appropriate measures to support the economy.
Investor buying also seems to have slowed down with rangebound price movement. Gold holdings with SPDR ETF stand at the highest level since May 2016, however, the pace of inflows has slowed.
The fund saw a net inflow of about 34 tonnes in the last two weeks as compared to about 54 tonnes in the first half of April.
This year, the gold rally has largely been led by safe-haven buying, higher investor interest and stimulus measures by central banks and governments.
While all these factors are still present, the intensity has eased and this is reflecting in gold's rangebound movement. Given the lack of momentum and increasing attractiveness of equities, short-term corrections in gold cannot be ruled out.
(The author is VP-Head Commodity Research at Kotak Securities.)
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