Crouching Rupee, Soaring Dollar, but Gold down by Rs 10 per gram for the week in Delhi

Last Updated: Sun, Jul 01, 2018 15:24 hrs
Gold - Rupee

Surprisingly, Gold prices seem to remain cocooned from the impact of the Rupee crashing to a five year low, and talks of the US making an unprecedented announcement, calling its allies to sever oil supplies from Iran.

It is surprising because a Dollar surge leads to a dip in Gold prices. And a rise in currency rates makes Gold costlier in India.

Trade concerns and volatility usually percolates into a fear, prompting investors to raise their bullion investments. This week, however international spot and domestic prices dropped a few margins. This in spite of tariff related trade concerns between the US and China still persisting.

Prices of the yellow metal (24 Karat) for the week were down by Rs 10 per gram in Delhi. On Monday the price was Rs 31,925.13, while on Friday, Sify.com's Gold ticker reflected a price of Rs 31,818.18, a hundred rupee difference per ten grams.

This was almost similar in line with the US spot markets. Gold slipped from $1272 (price per ounce on Monday) to $1252.82 (end of trading hours on Friday). In the trading session on Friday, Gold slipped to $1252.40.

Here are prices across India's five cities. Except for Chennai and Hyderabad, prices dropped in most cities. The graph reflects price per ten grams for the 22 Karat variant. Kolkata is costliest at Rs 29960 per ten grams, while it is cheaper in Hyderabad and Chennai (Rs 29130). Click on the dots to check the price.

Last month, a news report suggested jewelers and consumers were hoping of the prices to drop. There is a common perception that Gold is priced at a premium in India. A comparison between the international and domestic (24 Karat gold in Delhi) price reveals the margin could be Rs 100 per gram. For instance Gold selling at $1272 per ounce would percolate into a price of Rs 3052 per grams (calculation at 1 US$= Rs 68 and 1 ounce = 28.34 grams).

The two interesting components that decide on domestic prices would therefore be the international spot market itself, and the exchange rates. Although traders suggest that Gold is trading in a softer price on the spot markets, charts suggest that a period of dip is limited to 15 days - a few months.

Here are few interesting observations from spot-price charts

  • Gold slumped to $1240 on 11th December 2017. In 15 trading sessions it was trading at $1318.
  • Traded to a 6 month low of $1206 on 7th July 2017. In 15 trading sessions it was on $1270 levels, and in 45 trading sessions it set $1350 levels.
  • $1127 on 22nd December 2016. In 15 trading sessions it was at $1220 levels.
  • $ 1046 on 17th December 2015, but crossed $1260 levels on 11th Feb'16.

Will prices of Gold hit another low or would they start peaking up is a big guess. The exchange rate, rising crude oil prices, have lead to various speculative theories. India being the largest importer of Crude and Gold has limited options to meet the supply-demand equilibrium. A theory suggests that the RBI could support oil buying by providing its own reserves, which may further lead to a weakening of the Rupee.

This year the Rupee has already lost 8.1% (until Thursday) against the Dollar, although last year it appreciated by nearly 5% on account of positive Dollar inflows into several sectors.

Inflation has been well-managed and foreign exchange reserves soaring to a fresh high can offer as a buffer, but traders were speculating that the Rupee could slide up to Rs 70 in the short term.

The RBI, many said could be prompted to intervene, like it did during August 2013 when the Rupee breached the Rs 68 per dollar mark (68.82). Back then, the RBI governor Raghuram Rajan launched an NRI bond scheme to attract the much-required dollars into the Indian market.

Ajit Ranade, an economist writing for the Mumbai Mirror, says that is no need to panic about the falling rupee. He reasons that the Rupee tends to lose 3-5% every year since India's inflation is higher than the US'. The Rupee naturally loses purchasing power quickly in comparison to the US Dollar.

A higher dollar rate will certainly be cheered by India's IT and Pharmaceuticals sector, considered the biggest export churners. But a higher dollar rate and cheaper Gold will be sugar rush for the gems and jeweler sector, which exports a sizable chunk as Gold jewelry every month.

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