Gold hits five-year high, crosses Rs 33,000 mark on macroeconomic risks

Customers stay away from buying, price quoting at discount to landed cost of imported gold

Gold price touched a five-year high on Thursday, following the move by central banks all over the world to buy the precious metal that they think is a safe haven in a risk-averse environment. 

Standard (995 purity) gold in the Zaveri Bazaar in Mumbai jumped by more than 1 per cent to trade at Rs 32,090 per 10 grams on Thursday, up from Rs 31,850 per 10 grams on Wednesday. Similarly, pure (999 purity) gold moved up to trade at Rs 32,215 per 10 grams on Thursday from Rs 31975 per 10 grams on Wednesday. The prices are at their peak since September 2013. Calculating with goods and services tax, gold price touched Rs 33,333.  

Due to high prices and inauspicious buying going, the demand for gold has gone down, as a result, gold prices in the Mumbai market is quoting at a discount of $8-10 per ounce or Rs 200 per 10 gram. The discount is calculated on landed cost of imports. 

The gold price rise in rupee terms was largely driven by the prevailing price trend in dollar terms in the world market. In the benchmark London bullion market, gold price shot up by 7.8 per cent or $93 from its recent bottom of $1,200.37 an ounce the yellow metal hit on November 12, 2018. Since then, however, gold price in the Indian markets jumped by 3.1 per cent due to appreciation in the rupee against the dollar. 

“Macro economy is slowing down. The United States economy too needs a stimulus, which is expected in the next six months. Economists have already started talking about no further interest rate hike. Moving on, an interest rate cut may also be possible. Hence, gold is proving a real investment asset for returns. Gold prices moved in a narrow range in the last few years. Now, a couple of triggers may push up gold price further,” said Kishore Narne, associate director, Motilal Oswal Financial Services. 

Gold faced significant headwinds for most of 2018. The dollar strengthened, the Federal Reserves continued to hike interest rate steadily, while other central banks kept policy accommodative, and the US economy was lifted by President Donald Trump administration’s tax cuts. 

These factors fuelled positive investor sentiment which, in turn, pushed US stock prices higher, at least until the start of October 2018. “We expect increased market uncertainty and the expansion of protectionist economic policies will make gold increasingly attractive as a hedge. While gold may face headwinds from higher interest rates and US dollar strength, these effects are expected to be limited as the Fed has signalled a more neutral stance. Structural economic reforms in key markets will continue to support demand for gold in jewellery, technology and as means of savings,” said a report from the World Gold Council. 

Analysts are now forecasting gold price to hit $1,310 an ounce which, if breached, may push the bullion further up to $1,380 an ounce by March 2019. The sudden spurt in crude oil price this week looks unsustainable. “Unless some big events take place, gold price would not hold ground above $1,380 an ounce,” said Gnanasekar Thiagarajan, director, Commtrendz. 

India’s gold demand remained tepid in the 2018 calendar year.