Gold prices jump and rupee rises to 4-month high as dollar falters

Gold started the new year on a high in the international market by notching an eight-week peak on Monday, as the dollar slipped broadly to mid-2018 lows with investors selling it for just about everything else in the Asia session, wagering the world’s pandemic recovery would drive other currencies higher. The rupee closed at a four-month high of 73.02 after appreciating 9 paise.

Oil, too, touched multi-month highs on expectations Opec (Organization of the Petroleum Exporting Countries) and allied producers may cap output at current levels in February and on hopes that vaccines may curb the spread of the coronavirus and drive an economic rebound. But its price eased a bit in later trade.

Spot gold rose 2.14 per cent to trade at $1,919.11 an ounce by 5.58 pm IST, having hit its highest since November 9 at $1,925.05. 

In India, standard gold rose Rs 877 to Rs 50,619 a 10 gram in the national capital.

Brent crude, too, rose in line with the broader financial market and its futures reached $53.33 a barrel, the highest since March 2020. US West Texas Intermediate (WTI) crude touched $49.83 a barrel, the highest since February 2020. At 6.05 IST, Brent was 0.12 per cent down at $51.74 a barrel, while WTI was 0.45 per cent below at 48.30 a barrel.

Emerging Asia's currencies also began the new year on the front foot as investors bet that a vaccine-led recovery from the Covid-19 pandemic would keep the dollar subdued, with the Indonesian rupiah climbing to a more than six-month high.

The Indian rupee, too, strengthened, supported by sustained foreign fund inflows and weakness of the American currency overseas. Traders said approval to two Covid-19 vaccines in the country also improved sentiments.

The greenback continued to retreat after posting its largest annual loss since 2017 last year, buoying the Taiwanese dollar 1.5 per cent, while the Malaysian ringgit and the South Korean won advanced 0.6 per cent and 0.5 per cent, respectively.

“The Indian rupee appreciated amid weakness in the dollar and surge in the stock markets. Market sentiments improved on hopes of global economic recovery from pandemic buoyed by the rollout of vaccine and extraordinary fiscal and monetary stimulus,” said Saif Mukadam, Research Analyst, Sharekhan by BNP Paribas.

Further, the rupee gained strength on steady FII inflows and improved economic data, Mukadam said, adding that it may trade in the range of 72.75 to 73.55 in the next couple of sessions.

Positive economic indicators, too, played part in the weakening of the dollar. India’s Manufacturing Purchasing Managers' Index (PMI) was at 56.4 in December, a tick higher than November's reading of 56.3 and above the critical 50 threshold for the fifth straight month. The gauge of growth in British manufacturing activity rose to its highest level in three years as factories rushed to complete work before the end of the post-Brexit transition period on December 31. German manufacturing also continued to power on at the end of the year.

IHS Markit economist Phil Smith said: “With the rollout of Covid vaccines, it's hoped that the pandemic will become less and less of a hindrance to demand and that investment will continue to recover in the year ahead.” 

Commodities like iron ore and copper also kicked off 2021 on a strong note.