Gold edges lower in successive trades. Should you buy?

“Gold is likely to trade with a negative bias for the day amid higher US treasury yields. However, sharp downside may be cushioned as demand for gold may increase as a hedge against economic uncertainties. MCX gold is expected to break the key support level of 57,250 to continue its downward trend towards the level of 57,000,” said brokerage house and research firm ICICI Direct.

On silver prices, the brokerage said that MCX silver prices may face resistance near 67,100 and drop back till 66,400.

On Tuesday, gold prices dropped amid modest gain in the US dollar index and surge in US treasury yields. The dollar index was up 0.1 per cent, making bullion more expensive for buyers holding other currencies, while US Treasury yields ticked higher.

Traders must also watch out for the movement in the Dollar Index. A higher dollar against a basket of major currencies is detrimental to the prospects of gold.

Yellow metal prices in international market

In international market, Spot gold was down 0.1 per cent at $1,900.97 per ounce as of 0712 GMT, trading in a $7 range. Prices had briefly slipped below the key $1,900 level earlier in the session.

US gold futures fell 0.3 per cent to $1,905.10.

“Some degree of relative calm on US banks and an overnight rise in Treasury yields may temporarily reduce demand for safe haven proxies” such as gold, said OCBC FX strategist Christopher Wong.

“As the focus shifts to the Federal Open Market Committee meeting next week, the question remains what guidance and how dots plot will evolve taking into consideration the recent development with some U.S. banks versus combating inflation,” Wong stated.

The US Federal Reserve will likely raise its benchmark rate by 25 basis points next week and again in May, as a government report showed US inflation remained high last month, and concerns of a long-lasting banking crisis eased.

“Comex gold futures slipped on Tuesday and fell 0.29 per cent to close at $1,910 per troy ounce, snapping a three-day rally of more than 5 per cent, as US CPI data for February bolstered the treasury yields. The annual inflation rate in the US slowed to 6 per cent in February 2023, the lowest since September 2021 and in line with market expectations,” said Ravindra Rao, CMT, EPAT, VP – Head Commodity Research, Kotak Securities Ltd.

Rao added, “Focus is now shifting towards Fed and next week’s FOMC meetings. After the recent data, investors are expecting 25 bps hike in March FOMC meeting, and fed funds to be around 4.23 per cent by year year-end. Chinese data released earlier today showed a rebound in retail sales, which might prompt some weakness in the greenback and aid gold prices. US Retail sales to be released later today is also going to be crucial.”

The US consumer price index (CPI) rose 0.4% last month, after accelerating 0.5 per cent in January. In the 12 months through February, the CPI increased by 6 per cent.

Bullion is often seen as a hedge against inflation, but the opportunity cost of holding the non-yielding asset rises when interest rates are increased to bring down inflation.

“Investor allocation to gold remains low,” analysts at ANZ said in a note, but added they expect the banking turmoil to “reinvigorate investor demand over the longer term.”

Spot silver rose 0.2 per cent to $21.73 per ounce, platinum was 0.2 per cent higher at $984.59 and palladium was little changed at $1,507.60.

With agency inputs