Gold prices have been ruling at unprecedented highs in India and global bullion markets as investors are preferring safe haven assets amid economic uncertainty triggered by the COVID-19 pandemic.
On Friday, gold prices were recorded at Rs 50,919 per ten gram in Mumbai and Rs 51,946 per ten gram in the national capital, tracking international rates and rupee depreciation.
“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,” All India Gem and Jewellery Domestic Council Chairman Anantha Padmanabhan told PTI.
The global benchmark spot gold prices held near a nine-year peak of USD 1,900 an ounce.
“People are not buying marriage related jewellery as not many weddings are taking place and if at all they are then people are keeping it low key,” Padmanabhan stated.
Basically, consumers are waiting for the volatility in gold to settle down before taking any buying decisions, he said adding that the prices are expected to be bullish till November at least. “There might be slight fluctuations in prices but no major changes.”
World Gold Council Managing Director (India) Somasundaram PR noted that gold price topping Rs 50,000 mark is a key milestone and response is naturally mixed — happy investors and wary consumers.
“Gold prices are up by over 60 per cent since January 2019, it has been on a sharp upward trend since August 2019. Despite dollar price not having breached its previous peak yet, gold is currently at a life-time high,” he said.
The domestic prices are influenced by an interplay of several global factors — low or negative interest rates, and turbulence caused by trade strife and geo-political tensions, Somasundaram said.
Central banks’ gold buying over the last decade, which accelerated since 2018 to levels of 650 tonnes not seen since withdrawal of gold standard, also reinforced gold’s role in portfolio diversification, he added.
Rupee-dollar exchange rate also contributed to domestic price rise, amplified by COVID-19 related disruptions and a general sense of insecurity, Somasundaram said adding volatility with an underlying bullish sentiment is to be expected as disruptions and uncertainty caused by the lockdown and fear-induced behaviour continue.
It is natural that gold’s safe haven and diversification properties attract investors and excess liquidity in the market while jewellery buyers confront unbelievably high prices amid fear of a shrinking wallet, he said.
Pune-headquartered jewellery brand PN Gadgil managing director and CEO Saurabh Gadgill said consumer demand is low due to the current Covid-19 scenario and people are usually buying small items, however, investment demand is very high.
“Gold is ruling the roost as a safe haven among the investors…,” he added.
The gold price is likely to spike further in the next 12 months following the US elections, COVID-19 related disruptions and geopolitical tensions, Gadgill said.
“We are expecting gold to reach around Rs 65,000 per 10 grams in the domestic market in the next 12 months, while hitting USD 2,500 an ounce in the international markets,” he opined.
Investment consulting firm Millwood Kane International Nish Bhatt Founder and CEO said a weak US dollar, EU leaders approving a recovery plan worth 750 billion euros, an expectation of US Fed keeping interest rates near record low level till the end of 2022, and issues related to the virus getting prolonged are the key reasons for the rally in the precious metal.
“Gold is traditionally used as a hedge against inflation, and global economies are considering further stimulus to boost growth, which may fuel inflation further. We expect precious metals to trade firm until the number of global cases of COVID-19 is under control or a vaccine is introduced in the market which is still a few months away,” he added.
Vaibhav Saraf, Director, Aisshpra Gems and Jewels, opined that gold has always been a safe haven for investors globally.
“Increasing international border tensions, trade wars and COVID-19 are fuelling this growth further. Demand will be affected in the short run, but once the price stabilises, buyers will accept the price and demand should increase again,” he said.