Gold prices continued their upward trajectory, marking a fourth consecutive weekly gain as investors responded to signs of a weakening US labor market and shifting expectations for Federal Reserve policy. However, the record-high prices have led to a decline in physical gold demand across major Asian markets.

Price Movement and Weekly Performance

The precious metal saw a modest increase of 0.10% to $3,637.06 per ounce, culminating in a 1.40% rise for the week. This persistent climb underscores gold's appeal as a safe-haven asset amid economic uncertainties. Notably, gold reached a record high of $3,673.95 on Tuesday, reflecting strong investor sentiment.

Factors Driving Gold's Rally

Weakening US Labor Market

A key driver behind gold's recent performance has been the deteriorating conditions in the US labor market. The latest data revealed a surge in weekly jobless claims, indicating potential cracks in what has been a resilient job market. Adding to this narrative, the government disclosed that nonfarm payrolls may have been overstated by 911,000 jobs over the 12 months through March.

Inflation and Federal Reserve Expectations

While inflation concerns persist, with US consumer prices rising 0.40% in August (the steepest monthly increase in seven months), they were somewhat offset by an unexpected decline in producer prices. This mixed inflation picture, combined with the labor market data, has fueled expectations of a more dovish Federal Reserve stance.

A Reuters poll of 107 economists found near-unanimous consensus that the Fed will cut rates by 25 basis points at its upcoming meeting. Moreover, the majority of these economists anticipate another rate cut in the following quarter.

Asian Market Response

Despite the global rally, physical gold demand has weakened across major Asian markets due to record-high prices:

China

Dealers in China offered discounts of $17-$24 per ounce over benchmark prices, up from $12-$16 the previous week. This increase in discounts reflects weakening jewelry demand, even as China's central bank extended gold purchases for a 10th consecutive month in August.

India

Domestic gold prices in India hit record levels around 109,500 rupees per 10 grams. Dealers offered mixed discounts and premiums, while jewellers expressed uncertainty about stocking for the upcoming Dussehra and Diwali festivals due to high prices.

Other Asian Markets

Southeast Asia markets showed a shift from jewelry to investment bullion products.

Market Implications

The evolving economic landscape has had broader market implications:

• US Treasury Yields: The yield on 10-year US Treasury bonds remained near 4-month lows, reflecting decreased confidence in economic growth prospects.
• US Dollar: The dollar index is poised for a weekly decline, further supporting gold prices as the two often move inversely.
• Other Precious Metals: Silver, platinum, and palladium also benefited from the market sentiment, each set for weekly gains.

Outlook

As economic indicators continue to paint a complex picture, gold's role as a hedge against uncertainty appears to be strengthening. However, the record-high prices are creating a dichotomy between investment demand and physical retail demand, particularly in Asian markets.

Investors will likely keep a close eye on upcoming economic data, Federal Reserve communications, and consumer behavior in key gold markets for further clues about the direction of precious metals prices. The combination of labor market weakness, mixed inflation data, and anticipated interest rate cuts has created a favorable environment for gold investment, but may continue to suppress retail demand in price-sensitive markets.

Gold prices reached a new lifetime high of ₹1,13,100 per 10 grams in Delhi markets, rising ₹100 due to sustained buying by stockists. However, on the Multi Commodity Exchange (MCX), gold prices continued their downward trend for the second consecutive session as investors eagerly anticipate the release of US inflation data.

Market Performance

Gold October futures on the MCX witnessed a decline of 0.29%, settling at ₹58,675.00 per 10 grams. Similarly, silver December futures experienced a marginal drop of 0.12%, closing at ₹75,026.00 per kg. In contrast, gold of 99.5% purity advanced ₹100 to a record ₹1,12,600 per 10 grams in Delhi markets.

Factors Influencing the Market

The recent dip in gold prices on MCX can be attributed to several factors:

1. Profit Booking: Market analysts suggest that traders are engaging in profit-taking activities ahead of the crucial Consumer Price Index (CPI) data release.

2. Unexpected PPI Data: Surprisingly, the US PPI data showed an unexpected fall of 0.1% in August, contrary to the anticipated 0.3% gain. Despite this supportive data, gold prices continued to decline.

3. US Dollar Strength: The US Dollar Index saw a slight increase of 0.04%, reaching 104.82, which typically puts pressure on gold prices.

Supporting Factors for Precious Metals

Despite the current decline on MCX, several factors continue to provide support for precious metals:

• Ongoing geopolitical tensions
• Sustained central bank buying
• Expectations of potential Federal Reserve rate cuts
• Escalated market risks including inflationary worries
• Mounting public debt
• Weakening US growth
• Strong ETF inflows

Record Highs and Long-Term Outlook

The precious metal has surged ₹34,150 or 43.25% from ₹78,950 per 10 grams in Delhi markets. Industry experts expect demand to remain resilient despite elevated rates. Global economic uncertainty, strong investor appetite, and expectations of looser US monetary policy are driving the rally.

Internationally, spot gold traded 0.52% lower at $3,621.91 per ounce, while spot silver slipped 0.35% to $41.01 per ounce. Investors await the US consumer inflation report which could influence the Federal Reserve's anticipated interest rate cut.

Market Projections and Trading Recommendations

Analysts foresee continued volatility in the precious metals market this week. Projections suggest:

Market experts have provided the following trading suggestions:

1. Gold: Recommend booking profits on existing positions
2. Silver: Consider buying around ₹74,600.00, with appropriate stop-loss and target levels

Buying Strategy

Experts recommend a staggered purchase strategy over lump-sum buying to average costs and reduce short-term risk. This approach is particularly relevant given the current market volatility and the long-term bullish outlook for gold.

Cultural Significance

Industry leaders emphasize that while periodic corrections are natural, broader fundamentals including safe-haven demand and festival buying patterns continue to support prices. Cultural factors also play a significant role, as gold represents both investment and emotional value tied to Indian traditions and celebrations.

As the market awaits the US inflation data, traders and investors are advised to stay vigilant and adjust their strategies according to the evolving market conditions, while keeping in mind the long-term potential of gold as both an investment and a cultural asset.