GOLD IN GOLDEN ERA - WHY ??
Gold prices have reached new heights, spurred by geopolitical tensions and economic concerns. The spot price for gold hit a record $2,758.37 per ounce on October 23, before dipping slightly to $2,731.45. In India, gold mirrored this trend, reaching ₹7,513.37 per gram—a 40% jump from ₹5,354.20 a year ago. Historically, demand for gold spikes during the festive season, likely pushing prices further up.
Understanding of pricing of Gold :
Gold's pricing is influenced by investor demand and its role as a "safe haven" asset. Its low correlation with other asset classes makes it a preferred choice during economic downturns or geopolitical crises. Additionally, gold prices generally have an inverse relationship with interest rates; when rates rise, gold is less attractive as it yields no interest, whereas lower rates make it more appealing, especially when coupled with a weak dollar. Still, exceptions occur due to inflation or geopolitical factors.
Central banks’ purchases also underscore gold’s role as a hedge. The World Gold Council (WGC) reported net purchases of 8 tonnes by central banks in August, with Poland, Turkey, and India among the top buyers. Such actions, aiming to diversify forex reserves, contribute to price stability. Gold’s finite nature further influences pricing, as the transition from mining discovery to production can take decades, making it challenging to swiftly respond to market shifts.
Demand dynamics in India :
In India, gold demand typically peaks in the year’s latter half, coinciding with the festive and wedding seasons. However, a mid-September to October period, deemed inauspicious, temporarily slows demand. Despite high prices discouraging purchases recently, the WGC’s October report noted renewed interest with the festival season. A decline in the U.S. dollar also helped boost prices in September, emphasizing the global practice of pricing gold in dollars, which influences demand as the dollar fluctuates.
Where will it go ??
In near future, the All-India Gems and Jewellery Domestic Council, anticipates gold prices could slightly drop to $2,650 per ounce by mid-November but may rise again to $2,800-$3,000 next year. This range would mean a price of around ₹92,000-₹96,000 in India, a significant increase from current levels. He reported a strong market presence despite high prices, though volume dropped by 10% while value rose by 15%. For the Dhanteras season, he expects 20% of sales to be in bullion and 80% in Jewellery.
As per Research Dept. of the WGC, also noted a strong investment demand for gold, partly driven by rising prices. She highlighted an expected boost in rural demand due to favourable monsoons and higher crop sowing, which could raise rural incomes and support gold purchases. The reduction in gold import duties in July has also stimulated demand, with strong monsoon-driven spending power raising interest in rural and smaller urban areas. Given the ongoing festive and wedding seasons, demand is likely to remain robust in the coming months, potentially impacting prices further.
(Attention- Coming Up Very Soon with Story On "Effect On Stock Market" due to surge in Gold Prices)
