Gold prices scaled fresh record highs on December 22, triggering a sharp rally across India’s derivatives market amid expectations of a further easing in US monetary policy, sustained safe-haven demand and a weaker US dollar.
On the Multi Commodity Exchange (MCX), gold February futures surged 1.44 per cent to a lifetime high of Rs 1,36,132 per 10 grams, as of 2:05 PM. The rally mirrored global trends, with Comex February gold futures jumping 1.46 per cent to a new all-time high of $4,451.30 per ounce.
Why Is Gold Price Rising Today
US Fed Rate Cut Bets
The rally in the gold prices came as market participants increasingly bet on further US Federal Reserve rate cuts, as early as January. Lower interest rates tend to support non-yielding assets such as gold, as the opportunity cost of holding them declines.
The Chicago Mercantile Exchange’s (CME) Fed Watch Tool suggests a 22.10 per cent probability of a 25 basis point (bps) rate cut by the US Fed in January next year, while the likelihood of maintaining a status quo is 77.90 per cent.
By March, the expectations of a cumulative 25 bps rate cut increases to 45 per cent. However, markets also see a 45.90 per cent probability of rates remaining unchanged and a 9.1 per cent chance of a cumulative 50 bps cut.
US-Venezuela Conflict
At the same time, investors continue to seek safety in the precious metal amid ongoing geopolitical tensions between the United States and Venezuela, which is reinforcing gold’s appeal as a hedge against volatility.
US President Donald Trump and his top advisors have declined to rule out the possibility of military conflict with Venezuela, as tensions between the two countries continue to escalate over sanctions enforcement and alleged illicit oil shipments.
In the latest development, the US Coast Guard is pursuing an oil tanker in international waters near Venezuela, US officials told Reuters on December 21. If completed, this would mark the second such operation over the weekend and the third interception attempt in less than two weeks.
According to the report, a US official said the vessel is part of Venezuela’s so-called “dark fleet”, a network of ships accused of illegally transporting oil while attempting to bypass international sanctions. “The United States Coast Guard is in active pursuit of a sanctioned ‘dark fleet’ vessel that is part of Venezuela’s illegal sanctions evasion,” the official said, adding that the tanker was flying a false flag and is subject to a judicial seizure order.
Currency Volatility
Currency volatility have also played a role in amplifying gains for domestic gold prices. A softer US dollar bodes well for gold’s prices. When the dollar weakens, gold becomes cheaper for holders of other currencies, which tends to support demand. Further, any depreciation in the rupee against the dollar tends to push local gold prices higher.
“The weaker rupee or higher USD/INR makes gold imports costlier in rupee terms, often pushing up the domestic gold price, while a stronger rupee can take pressure off prices. With gold largely imported, there would be direct impact from currency swings on landed costs. Volatility in the rupee also impacts jewellers hedging strategies and retail pricing sentiment,” said Aksha Kamboj, Vice President, India Bullion & Jewellers Association (IBJA) and Executive Chairperson, Aspect Global Ventures.
Gold Price Outlook
Looking ahead, market participants are closely tracking a mix of macro and policy signals that could influence near-term price action.
“Traders must keep a close eye on crucial macroeconomic indicators such as US inflation, employment, and gross domestic product (GDP) numbers, as well as geopolitical events, which have an influence on worldwide interest rate markets and safe-haven demand, causing oscillations in the gold prices because of thin holiday markets,” said Kamboj.
