Gold has witnessed sharp swings this year, as a result of a few major fundamental changes like central bank policies, geo-political uncertainties, debate between hard & and soft landing, higher buying interest in riskier assets, and volatility in Dollar Index and yields. In a recent report, brokerage house Motilal Oswal Financial Services predicted that the yellow metal is likely to hit around ₹63,000 in the medium term.

Gold has yielded strong returns in the past, more than doubling in the last 10 years and advancing over 60 percent just in the last 4 years.

Historically, bullion demand appetite rises up over the festive season, but lately, the demand trends have witnessed a sharp shift where market participants do not specifically wait for a reason, and invest whenever there is a reasonable correction. There are too many narratives driving the gold bullish story and the reasons keep on changing time and again, it noted.

But one thing is certain - had you invested in gold during Diwali 2019, by this Diwali you would have been sitting on 60 percent returns on your domestic gold investments, highlighted the brokerage.

Also, SPDR Gold shares on a 5 and a 1-year horizon have posted 30 percent and 10 percent gains, respectively, while on a similar time frame, average gains of domestic Gold ETF are to the tune of 55 percent and 15 percent, respectively, it further informed.

For the most part, heavy buying by the central banks and conflict in the Middle East have helped drive the prices of the precious metal, it said. However, it also pointed out that this year the volatility until now has been fierce as, gold marked a near-all-time high of $2,070 at the start of this year and then reversed from marking lows close to $1,800, and is now back to $2,000.

"This year, gold witnessed a roll-a-coaster ride providing both bulls and bears an opportunity; which too offered bargain levels for long-term investments. The aggressive rate hikes by major central banks briefly took the sheen out of bullion; however, recent developments regarding geo-political tensions and expectations of a pivot in current monetary policy stance provided strong support to gold prices," noted Motilal Oswal.

Still, going ahead, there certainly are some headwinds for the metal like expectations of soft landing, further rate hikes, ease off in geo-political tensions, and higher real rates, it cautioned.

"However, the risk premium is being priced in gold, from the pandemic to the Russia-Ukraine war and the latest Israel-Hamas dispute. An ease-off in the Middle East dispute and/or continuation of the hawkish stance from the Fed could weigh on gold prices. However, the above factors could have a hangover for longer than expected and keep the party going for gold bulls helping it guide towards the medium target of ₹63,000," said the brokerage report.

While gold prices are likely to continue rising, the brokerage has also highlighted some factors that can impact the prices going ahead.

The brokerage stated that major central banks around the world have been steadily increasing their gold reserves, which has boosted sentiment for gold.

"We have only seen two months this year where central banks were net sellers; the pace of buying so far this year suggests that central bankers are on track for yet another strong annual addition. Strong buying from China, Poland, Turkey, Kazakhstan, and a few other countries has resulted in a net total of around 800 tonnes in this year," it informed.

Also, monetary policy action from major central banks has been quite aggressive; the Fed has already raised rates by 525bps since last year, leading to an ease in inflation. 

However, costs relating to wages, energy, and food are increasing concerns for major central bankers leading to a sustained hawkish stance. Economic data points such as GDP, retail sales, jobs, etc. were reported better than expectations showing the economy’s resilience. A higher interest rate scenario is a headwind for non-yielding asset gold; hence, a pivot from the current stance is critical for gold prices to sustain their upward trend, it said.

US central bank kept the rate unchanged while Governor Jerome Powell gave out mixed comments. On one hand, he mentioned that the Fed could continue to take measures to achieve their 2% inflation target rate, while on the other, he raised concerns regarding the financial health of the economy. In the last few meetings, probability of changes for rate hikes in this year and rate cuts for next year has triggered a lot of volatility in safe haven asset, noted the brokerage.

Moreover, MOSL pointed out that keeping an eye on the geo-political situation now also becomes quite critical, as gold is also recognised as a crisis hedge.

"Any uncertainty in the market has always benefitted bullions; last year we had the Russia-Ukraine war and currently Israel and Hamas dispute, which has improved enthusiasm for gold, despite a rate hike scenario. Hamas faction took Israel by surprise and launched multiple rockets, attacking a few public gatherings and events in Israel; within a day, the latter retaliated aggressively with air strikes and bombarded Gaza. Initially, market participants were expecting that this decade-long dispute would ease off soon, but with alleged interference from neighboring nations such as Jordan, Syria, Egypt, and Iran, the dispute has taken an aggressive turn," it explained.

Finally, following an uneven monsoon, demand for work under the national rural jobs initiative has increased, while crop losses and export curbs have reduced farm revenues. A strong rural economy is a prerequisite for faster economic growth as it fuels consumption, an important engine for growth. A large portion of the demand for gold comes from rural India, and hence this along with higher prices could put a dent in gold’s demand in the near term, it added.