Gold Prices Gain On Fed Rate Cut Buzz, Safe-Haven Demand As US Tariffs Shake Markets

Gold is likely to trade with a positive bias in the coming week, supported by rising expectations of interest rate cuts by the Federal Reserve, fresh volatility due to the US administration's aggressive trade stance, and continued safe-haven demand amid a softening dollar, analysts said.

Investors will monitor PMI data from the EU and the UK this week, along with speeches by US Fed officials. The US jobless claims data will also be tracked for cues on the Fed’s interest rate path.

However, the focus is likely to shift toward the economic fallout of US administration's trade restrictions on 70 countries which may lead to supply chain realignments, inflationary pressure and fresh interest in safe-haven assets like gold, they added.

"In the week ahead, gold prices may continue to trade steady but with a positive bias as focus now will turn on the impact of the US trade tariffs in the American economy and likely trade disruption in the global market as most countries would be looking to either negotiate the trade terms or look for an alternative market to sell their products or services.

"Also, very few data are lined up in the week, which means that volatility may increase in the coming trading sessions," Pranav Mer, Vice President, EBG, Commodity & Currency Research at JM Financial Services, said.

Further, Mer stated that gold prices rallied sharply on Friday and closed the week in positive, following a weaker US payrolls report that boosted expectation of an interest rate cut by the Federal Reserve and a drop in the dollar index. Also, recent tariff's announced by President Donald Trump raised safe-haven demand.

Last week, gold futures for October delivery rose Rs 971 or 0.98 per cent on the Multi-Commodity Exchange (MCX). On the global front, COMEX gold futures rose by USD 51 or 1.52 per cent to close at USD 3,413.80 per ounce on Saturday.

However, domestic and global bullion trends have shown some divergence.

According to Prathamesh Mallya, DVP-Research, Non-Agri Commodities and Currencies at Angel One, the correction in MCX gold prices was relatively muted due to the rupee's depreciation.

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"MCX gold prices made highs of Rs 1,00,410 per 10 grams and corrected lower towards Rs 98,047 per 10 grams, down by nearly 2.5 per cent. The fall in gold prices was lower as compared to the global bullion prices on account of rupee depreciation by around Rs 86.5 to Rs 87.5 against the US Dollar in the same time period," Mallya said.

Moreover, the tariff imposition by the US on Indian imports to 25 per cent added spice to the global macro situation and the trade agreement between the United States and the European Union which limited further gains in gold prices, he added.

Adding to the dynamics was the shift in domestic physical demand. NS Ramaswamy, Head of Commodities & CRM at Ventura Securities, said, "India's domestic gold had generated physical buying after a pullback in prices from Rs 1,00,555 per 10 grams last week to Rs 97,700 per 10 grams".

"Supplementing the renewed buying interest was the reduction in discounts (USD 15 last week saw only USD 7 as discounts) offered by Indian gold dealers in the domestic market. Due to the drop in international prices, jewellers replenished inventory, eventually offsetting the impact due to rupee depreciation," NS Ramaswamy said.

Ramaswamy also pointed out that gold's volatility around July 31 and August 1 sessions was driven by renewed trade policy uncertainty and hawkish Fed expectations, which initially pressured gold before pushing it higher.

"The executive order imposing higher tariffs led to a quick turnaround in the dollar index, which retreated from 100.06 to a low of 98.47-level. This allowed gold prices to recover sharply and enter a bullish zone.

"Gold has now changed its course from the consolidation mode of last week and now awaits an upside break from USD 3,440-level to claim its bullish territory," he said.