New Delhi, March 4 (SocialNews.XYZ) Inflationary monetary and fiscal policies combined with elevated global crude oil and commodity prices could cause a spike in domestic inflation, which in turn will be supportive for gold as investors strive to keep up with the inflation, said Quantum Mutual Fund in a report.
Besides, a flight of capital from India due to a widening current account deficit and tightening global financial conditions could put downward pressure on the Indian rupee, which will be conducive for domestic gold prices, it said.
"While tightening of financial conditions is fundamentally negative for gold, there are multiple risks on the sidelines which, if materialised, can help those with a strategic portfolio allocation to the metal to better navigate financial markets in these uncertain times."
After months of range bound price action, gold garnered strong buying interest in February touching over one-year highs of $1,970 per ounce before settling just above $1,900.
The rally in gold prices was also a result of risk aversion fueled by firming inflation and geopolitical tensions.
Gold is a safe-haven asset and a hedge against inflation, thus investors typically prefer the asset class in times of high uncertainty or volatility.
It added any tightening of monetary policy by the US Fed, however, is expected to keep gold prices in check.
"The Fed has been behind the curve and further firming of commodity prices will lead to a more catching up on their part rather than real tightening. The slowing growth will test the Fed's resolve to tighten liquidity and hike rates. Any U-turn in their stance will be a big win for gold."
Source: IANS
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