Mumbai/Delhi/Chennai: Gold rates across the world have shot up in recent times. On Tuesday, Gold rates hit a high on spot exchanges across the world.
At India's Multi-Commodity Exchange (MCX), futures contracts for the month of August raced off to an intra-day high of Rs 48,384 per ten grams. The India Bullion Jewellers Association rate card for 24 Karat read - Rs 48,482 per ten grams (AM rates). Rates for other variants too was significantly higher. Gold rates data of Sify.com showed an average increment of Rs 270 across 50 major cities of the country.
With this, the average 24K Gold rate stood at Rs 48,043.10 while 916 or 22K Gold was trading at Rs 46,236.30 per ten grams. Rates for Chennai, Bengaluru, Delhi, Mumbai, and other major cities are individually tracked and data is available on their respective city pages.
Rates peaked to a high on Monday, cooled marginally on Tuesday, showing how volatile Gold has turned in recent times. Here are five reasons for Gold to turn so expensive.
•1. Higher International Benchmark rates: The London Bullion Market Association which is the first authority in determining rates had settled for a higher benchmark rate. LBMA rates in the past fortnight have hovered over the $1,700 per troy ounce mark. Rates for Wednesday (LBMA rates for the same day are available to only auction participants) were fixed at $1,768.90 per troy ounce (fixed on Tuesday). US and other international stock exchanges which have their rate-discovery mechanism fixed around LBMA rates, naturally saw a surge. The day's range for most US spot traders hovered around $1,765.67 - $1,773.60.
•2. Bad Policy invites concerns: There have been strong reactions centered around the US policy on H1B visas. The US suspension on H1B visas is expected to hit a number of Indians with many fearing restrictions on resuming their US work and continuing with their jobs. The tech industry has rallied around what it believes is a draconian policy in the days of the pandemic. Amazon Chief - Jeff Bezos, Google's Sundar Pichai and even Apple have stated why the policy remains a misadventure.
•3. Currency fluctuations: The INR gained marginally against the USD on Wednesday's forex trade, however a reading of the US Dollar Index for the past ten trading sessions indicates volatility. Traditionally Dollar and Gold have been inversely proportional. US Dollar Index which measures the strength of the greenback against a basket of reserve currencies has shown consistent weakness for the past three trading sessions.
•4. 2nd Wave coming: Among investors the outlook on Gold has been to buy or hold. The street advice is to Sell only during an emergency. For the average common man, Gold as an asset is something to store and to en-cash only during rarest of rare circumstances. With Covid refusing to die and the forecast of a painful second wave of coronavirus hitting the world, investors are re-assessing their portfolios to make more Gold allocations.
From an economic standpoint a revival is on cards. US Treasury secretary Steven Mnuchin has signaled that the next US stimulus would be getting people back to work quickly and an extension in tax deadlines. However, there are more investors joining the Gold-rush. SPDR Gold Trust, the entity holding the world's largest gold backed ETF, claiming their holdings soared by 0.28 percent to 1,169.25 tonnes.
Total cases in India have crossed the 4.5 lakh mark even as deaths hovered around 14,476. For more statistics and impact analysis on Coronavirus, follow this link.
•5. Safe Haven & Expectations on Central Bank action: Rising number of Covid Cases and interest among the investor community is to stock up on Gold to protect during uncertain times.
There is also a market feeling that higher jobless claims, more money to support covid-struck economies would force central banks to continue with a dovish stance. Investors are rooting for the US Federal Reserve to maintain a dovish stance and keep interest rates at abysmally lower levels. Also, central banks are believed to hold interest rates lower. A lower interest climate augurs well for Bullion investments.