HYDERABAD: After touching fresh peaks, domestic gold prices corrected on Wednesday, but commodity watchers believe prices will stay elevated throughout 2019.
The global economic slowdown is partly making gold expensive, but ironically, higher prices will likely exacerbate the prevailing slump led by weaker consumption and retail sales of the yellow metal. On Wednesday, gold prices ended lower at Rs 37,945 per 10 grams (in Delhi), though globally it was trading higher at USD 1,509.09 an ounce (in New York).
“Long-term, there’s no doubt that gold prices will continue upwards due to a slew of reasons. All central banks globally are reducing rates, because they are seeing economic growth issues. Even the World Bank revised growth forecasts downwards. Traders are also waiting for next week’s US Fed’s annual symposium for clues on the future course of action on policy rates. Lastly, though the US trade tariff imposition on China was deferred, it doesn’t mean they reached a resolution and the threat of a trade war isn’t totally ruled out,” Pritam Patnaik, Head-Commodities, Reliance Securities, told Express.
Market expects another 25 bps cut by the Fed in September. It means, lower rates in the US puts pressure on the dollar and bond yields, and by default triggers an investor rush to safe-haven assets like gold, in turn pushing up its price. “Event-based activities will trigger movements (upward and downward), but the broad trend remains negative for global economy. We won’t be surprised if gold reaches Rs 39,000 in next 3-6 months,” Patnaik explained.
For Indians, it’s a double whammy. Not only global gold prices are rising, but a weaker rupee - the Indian currency, which hit a six-month low Tuesday, has so far been Asia’s worst performer - increases the landed cost of gold. As if this isn’t enough, in July, the government raised import duty to 12.5 per cent from 10, making the yellow metal costlier. But analysts say nothing would stop Indian consumers - the world’s second largest gold buyers - from indulging in fresh purchases.
Evidence came from the World Gold Council, which showed that Indian gold demand shot up 9 per cent to 372 tonnes in the first half of 2019. This is despite domestic prices shooting through the roof at over 15 per cent in the last three months. “This year has seen an unusual jump in prices, but retail buying won’t stop. But the quantum of buying will reduce due to higher prices,” Patnaik noted.