Gold price is surging, here’s why

Despite sluggish consumer demand, various domestic and global factors are pushing gold prices up

Gold price is surging, here’s why

Gold has been on an upward trajectory since the Coronavirus pandemic struck. In India, the price for a tola or 10 grams of 24 karat gold breached the Rs 50,000 mark for the first time in history and traded at a recorded high of 52,309 on July 28, 2020. Analysts are forecasting the prices to touch Rs 60-62,000 by Diwali, and end the year at around Rs 65,000 per 10 grams.

Declining consumer demand

The price rise is happening despite sluggish demand. Uncertainty on account of Covid-19 and record-breaking prices are keeping many consumers at bay. Traditionally too, a slack is expected during the July-September quarter, especially from rural households on account farming expenses related to the sowing of Kharif crops.

Amid poor economic indicators, the jewellery industry is expecting the demand for gold to temper down further. “The demand is already very sluggish at the moment with only 20-25 per cent business taking place following the economic slowdown, insecurity over jobs, social distancing and lockdowns due to Covid-19. The high price of gold will add on to the already sluggish consumer demand,” shared Mr Anantha Padmanabhan, Chairman, All India Gem and Jewelry Domestic Council, in a report by The Times of India.

Related: Gold ETFs vs Physical gold: Which one is better? 

What other factors affect gold prices?

A host of domestic as well as global factors influence how gold price move. The eroding value of the Rupee against the US Dollar has been a concern for a while. Since gold is primarily imported, the depreciation of the Rupee directly impacts the purchase cost.

Geopolitical tensions with China and other neighbours brings a sense of insecurity and creates greater interest in a safe haven asset.

Gold prices tend to move inversely with equity indices. The volatility across stock markets and falling interest rates shift investor interest towards stable options. Similarly, any expansion in paper currency too tends to push gold prices up. The Rs 3.74 lakh crore liquidity injection by the RBI will impact gold prices.

In addition, consistent purchases by the Chinese and Russian central banks over the last two years have supported higher gold prices. The upcoming US presidential elections will have an impact on global gold prices as well.

Related: Factors that affect gold prices in India 

Why is gold considered a safe haven?

Gold’s value and appeal is universally accepted. It acts as currency in times of economic instability and as a hedge against inflation. As long as the Covid-19 uncertainty persists, gold will continue to hold its sheen. Look at these 5 Gold schemes offered by jewellers and how they work.


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