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Gold is old? Not a hedge against inflation!

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Chennai, Oct 11: Has gold turned old against inflation is the question that pops up as its prices are range bound when the inflation is going up globally.

Generally, gold is considered as a hedge against inflation but this time around it does not seem so.

“Despite the fact that we are witnessing high inflation, and economic uncertainties around the globe, gold has been largely trading range-bound, the trading range has been $1630 and $1740 for the past 1 month. It is currently trading around $1690-1700/oz. It is widely expected that in the near future, gold may remain in narrow ranges,” said Emkay Global Financial Services.

Despite geopolitical tensions and global slowdown concerns, gold has not seen much of safe haven buying as investors are largely moving towards dollar index, said Kotak Securities Ltd.

As the reasons for the gold price under pressure, Emkay Global said the rate hike by the US Federal Reserve has led to the US dollar strengthening against major currencies of the world.

A firm dollar makes buying gold much more expensive thereby reducing the investment appetite.

The rise in the US interest rates and the likelihood of the hawkish stance of the Federal Reserve converting itself into rate hikes which may go well into the next year as well may keep gold prices at the lower end of the range, Emkay Global said.

“The current spell of gold weakness may continue till there is more concrete information on the state of the economy in the major economies, especially against the background of an aggressive central bank trade-off unfavourable to growth and promoting stability,” Emkay Global remarked.

IANS

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