Gold heading towards Rs 45,000 level amid volatility in global markets

Volatility in the global markets has once again brought gold back in focus, with the price of the yellow metal rising sharply worldwide. In India, it is approaching the Rs 45,000-level.

This is a boon for investors holding gold exchange-traded funds and sovereign gold bonds (SGBs). At present, it is perhaps the only instrument to be providing returns based on the money invested.

While the spot gold markets are closed across the country, the Indian Bullion Jewellers Association’s price, which still acts as the indicative price, saw a sharp jump on Wednesday, with a near-3 per cent jump to close at Rs 43,250 per 10 gram (999 purity).

Although the spot market is closed, the rising trend is reflected even in listed SGB prices. SGBs are also accepted as collateral.

According to Ajay Kedia, director of Kedia Advisory, in the international market “there was a huge demand for the dollar among international investors, and traders were seen buying gold, given that both are considered global currencies. Following the COVID-19 related lockdown, refineries in the UK had to keep their operations shut or running at lower capacities, which sent gold prices surging.”

The international gold price is at $1,620 per ounce. Compared to this, domestic prices are at a discount.

Discounts are wider in MCX futures because of heavy selling in April contract futures. On the MCX, several traders were bearish and had sold gold in the past few days. They felt they would purchase gold once markets opened after March 31. However, since the lockdown will now last longer, delivering gold is not possible.

As a result of selling on the MCX, the futures market price is at a discount of Rs 2,000 per 10 gram to the landed cost of gold. The landed cost acts as a benchmark. Gold imports, too, have now been halted, following the lockdown.

At present, open interest or speculative position on MCX April gold futures stands at 3.4 tonnes. In futures, the top 10 long open positions are of 10,166 lots, while the top 10 short positions are of 17,791 lots, based on Tuesday’s closing, thus indicating that short positions were significantly higher than long positions.

Globally, too, refineries have either been shut or are operating thinly. In Peru and Chile, mines — including gold mines — have been closed, following the virus scare.

Therefore, doré or partially refined gold was not supplied to refineries, even in Switzerland, where the lock down is not that stiff.