Gold is shining once again as investors seem to be once again warming up to the potential of the yellow metal. In India, gold prices zoomed past the Rs 33,000 per 10 grams for the first time in more than four years.
Globally, gold prices surged $12.92 per ounce to $1322, up by 0.98%. The US Fed’s indication that it would keep interest rates on hold seems to have done the trick.
Fed Chairman Jerome Powell added that it would slow the increase of its $4 trillion balance sheet. Lower interest rates have an inverse relationship with gold prices. Gold usually tends to rise as money leaves bond and flocks to physical assets like gold.
On the one hand, rising interest rates increase investor appetite for bonds, while leaving gold to drop down slowly. Similarly, gold and dollar share an inverse relationship. A declining dollar increases the value of other currencies and commodities, thereby increasing gold rate.
Gold’s demand is also on the rise. According to a World Gold Council’s report, global gold’s demand reached 4345.1 tonnes (t) in 2018, up by 4% from 2017. The rise has been due to a multi-decade high in central bank buying and investment in bars and coins in the second half of the year.
In India, however, rising prices seems to have an adverse effect on gold demand. In India, gold demand fell from 771.2 tonnes in 2017 to 760.4 tonnes in 2018. Investment demand also dropped by 4% from 169.3 tonnes in 2017 to 162.4 tonnes in 2018.
Interestingly, in 2018 gold recycling rate also dropped by 1% from 2017. In short, 2018 has been an unproductive year for gold for Indians.
According to Somasundharam PR, Managing Director, India, World Gold Council said that investment demand has received its usual seasonal boost during Diwali with 56.4t – the strongest quarter in the year, but it was still down 5% in Q4 2017.
