Gold gains marginally; US Fed meeting keeping investors cautious, rising geopolitical tensions and wedding season offer balance

Gold prices in India on Friday, December 6, ended nearly at ₹77,900 per 10 gm 24K gold and ₹71,400 per 10 gm 22K gold, marking a minimal increase from last week.

The month of November saw an overall dip of 2.6% for gold prices, led by the end of the festive season boost, a stronger US economy outlook and the Israel-Hezbollah ceasefire. The yellow metal has fallen over ₹2000 from its record high prices seen near the start of November, during Diwali season.

However, the ongoing wedding season in India and escalations between Ukraine and Russia aided the prices near the end of last month, hinting at a modest comeback for gold in December. With the political upheaval in South Korea and the continuing Russia-Ukraine stressful momentum, gold prices saw a slight increase in the first week of December.

Gold as a safe haven

Gold is considered a safe haven, providing shelter to investors who seek safer investments in times of global uncertainty. Market volatility, geopolitical escalations, rising inflation and greater demand for gold in AI-enabled devices and other advanced technologies can all help gold climb at times when it starts to become unappealing due to other factors.

While the World Gold Council suggests that the use of gold in electronics and AI chips has significantly increased and will only drive gold demand further in the upcoming year, factors like a stronger US economy and bitcoin rally can sway investors away from the yellow metal. The upcoming US Fed meeting from December 17 to December 18 can also have a major impact on the yellow metal prices.

"While the long-term trend for gold remains constructive, near-term consolidation and pressure are likely, as markets weigh geopolitical risks against a strong US economy and a cautious Fed. Investors should monitor key technical levels and other global cues," a Live Mint report quoted Sugandha Sachdeva, Founder of SS WealthStreet.

RBI MPC meet

The recent RBI MPC (Monetary Policy Committee) meeting that ended on December 6, resulted in a stable repo rate for the 11th consecutive time. RBI Governor Shaktikanta Das maintained the status quo on both the repo rate and the monetary policy stance, keeping the rate constant at 6.5% and continuing with the neutral stance. The repo rate was last increased in May 2023. The neutral stance, giving flexibility to the central bank to change interest rates as and when required, is a comparatively softer monetary policy stance for the economy.

Furthermore, the RBI also cut the GDP growth projection to 6.6%, significantly lower from the earlier level of 7.2%. The inflation target was also raised to 4.8% from the previous projection of 4.5% for the current fiscal year. Inflation rates and economic growth outlook can impact gold demand and its prices.