 "Gold Play: What explains the record high in gold prices in India?")
Gold is glittering brightly. The yellow metal’s prices hit a record high on Wednesday (September 25) amid the conflict in West Asia and rate cuts by the United States Federal Reserve.
In India, prices soared to touch Rs 76,000 per 10 grammes. Overseas, spot gold reached $2,662 (Rs 222,752.17) per ounce, after its previous all-time high of $2,670.43 (Rs 223,457.58). Experts expect the gold prices to continue their upward trend in the coming months.
But what is driving up the gold rates? Let’s understand.
Gold prices in India
India saw the rate of 24-carat gold hit Rs 75,280 per 10 grammes on Wednesday, while 22-carat metal reached Rs 69,007.
According to The Week, gold has gained 30 per cent in dollar terms this year, with prices of the precious metal up around 19 per cent.
At a volume of about 140 tonnes valued at $10.1 billion, India reported a record hike in gold imports in August. This rise was a result of the anticipated demand for the yellow metal ahead of the festive season and a fall in import duties.
There has been a steady surge in Indian gold exchange-traded funds (ETFs). Data from the Association of Mutual Funds in India (AMFI) shows record inflows of $238 million in August, a significant uptick from the average monthly inflows of Rs 8 billion during the first half of 2024.
The Reserve Bank of India (RBI) has continued to buy gold, obtaining 10.3 tonnes of the precious metal over the six weeks ahead of September 6, reported ANI. This has brought the central bank’s total purchases to 50 tonnes in 2024.
With this, the RBI has become one of the top gold buyers in the world this year.
Overseas gold prices
Gold is continuing its upward trend today (September 26), nearing a record high. As per Reuters, spot gold stood at $2,660.75 (Rs 222,647.57) per ounce, as of 0601 GMT (11.30 am IST).
US gold futures climbed to $2,684.7 (Rs 224,651.67) on Wednesday and have remained steady today.
According to Reuters, gold has increased over 28 per cent so far this year.
Why gold prices are rising
Gold becomes a go-to commodity for investors in times of uncertainty. The ongoing conflict between Israel and Hezbollah has fanned concerns of a wider war in West Asia. This has fuelled the demand for gold, which is considered a safe haven metal.
According to FxPro senior market analyst Michel Saliby, people are considering “any case of turbulence in the economy.” “This is why they’re keeping a decent portion of gold in their portfolio as a ‘safe haven’”, he told Associated Press (AP).
A weaker US dollar has also boosted demand for gold. The yellow metal’s allure is enhanced by its inverse relationship with the US dollar. When the value of the dollar falls, gold usually increases in value.
The US dollar is close to a 14-month low, which has made gold cheaper for overseas buyers.
Recently, the US Federal Reserve slashed its interest rate by 50 basis points. There are expectations of another big cut in November, reported Reuters. Lower interest rates make gold more attractive, leading to a rise in demand which escalates prices.
Besides the Fed, several central banks have started reducing their interest rates as inflation eases and economic uncertainties increase.
“The prices of gold continue to remain elevated, primarily driven by the rally following a 50-basis point rate cut by the Federal Reserve. Continued geopolitical risks, led by the escalation between Israel and Lebanon in the Middle Eastern region, have also contributed to the upward trend,” Chintan Mehta, CEO of Abans Holdings, told The Week.
China is also a factor in the higher gold prices. Its central bank has announced interest cuts to boost the economy. “China’s rate cuts could drive further demand for gold among Chinese investors,” Kelvin Wong, Senior Market Analyst at OANDA, was quoted as saying by Reuters.
Analysts believe inflows into gold ETFs will jump, leading to a rise in demand and keeping gold prices up, as per CNBC TV18.
Speaking to News18, Kaynat Chainwala, assistant vice-president (commodity research), Kotak Securities, said, “Comex gold surged to $2,689.40 per ounce yesterday (Tuesday) as a significant drop in US consumer confidence heightened expectations for aggressive interest rate cuts by the Federal Reserve. The US Conference Board’s Consumer Confidence Index fell sharply in September to 98.7, down from 105.6 in August, its largest decline in three years. Concerns over the labour market, combined with lower US Treasury yields and the US dollar nearing a 14-month low, further fuelled the rise in gold prices. Additionally, Fed Governor Michelle Bowman highlighted persistent inflation risks and advocated for a cautious approach to rate cuts to avoid reigniting inflation.”
In India, the surge in gold prices comes just before the festive season – Durga Puja, Navratri and Diwali. “The sentiment is upbeat as the festive season has already begun. However, presently due to the Shraadh period, the demand may witness some softness but is expected to gain momentum at the onset of Navratri till Dhanteras,” Colin Shah, MD of Kama Jewellery, told The Week.
Market watchers say the gold rate is likely to remain high in the coming months.
With inputs from agencies
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