International gold price flirting with all-time high seen nine years ago

US-China friction has weakened the dollar index, while disappointing US Jobless claims data has also pushed gold prices higher

The price of gold reached an all-time high in both domestic and international spot markets on Wednesday. The yellow metal breached the $1,900-mark globally and was trading at $1,902.93 an ounce (until 8.34 pm IST) — nearly $3 more than the record closing of 1,900.2 nine years ago on September 5. Intraday, the metal went as high as $1,921 per ounce on September 6, 2011.

In Mumbai’s Zaveri Bazar, standard gold closed 0.8 per cent up at a new peak of Rs 50, 919 per 10 gram. Silver closed 1.5 per cent lower at Rs 59,885 a kg, but internationally, the metal was 0.93 per cent up at $22.79 an ounce.

In the futures market, too, gold was at an all-time high. August futures of the metal was trading at $1,901.10 an ounce (until 8.38 pm IST) on US Comex, against Thursday’s record closing of $1,890 (the previous high of $1,888.7 was recorded on August 22, 2011). On India’s MCX, the rate for August 5 futures was Rs 50,993 per 10 gram after climbing a record high of Rs 51,150.

“When interest rates are zero or near zero, then gold is an attractive medium to have because you don’t have to worry about not getting interest on your gold and you see the gold price will rise as uncertainty in the markets are rising,” Mark Mobius, co-founder at Mobius Capital Partners, said in a Bloomberg TV interview. “I would be buying now and continue to buy.”

The latest surge in the price of this safe haven commodity comes on the back of China asking the US to shut its consulate in Chengdu, while retaliating the Trump administration demand that the Asian giant closes its Houston consulate. The weakening of the dollar index and the disappointing US jobless data supported the rally in the metal.  

 

 

Gnanasekar Thiagarajan (CEO), Commtrendz Risk Management Services, said: “Gold and silver (which was trading at Rs 61,496 kg on the MCX for September 4 futures) have been buoyed mostly because of the increasing rift between the US and China and a substantially large stimulus package from the EU. Also, in the US, there are talks of further stimulus. In such a scenario, asset prices are expected to rise and result in a jump in inflation. And a proven inflation hedge is gold. Silver, too, is preferred as a cheaper alternative to gold. Besides, base metal and energy prices are still struggling at high prices due to lack of demand.”  He said the current momentum would continue for some months, interjected by some profit-bookings. 

Jewellers, however, appeared cautious. One of them said the market is overbought and can correct once the all-time high target is achieved. Rising gold short positions and lower net long positions on the Commodity Futures Trading Commission for the last four weeks also point to overbought positions. Gold short positions were at a four-week high of 41,543 lots on July 17. Profit-booking is expected to be sharp and soon. Tapan Patel, senior commodity analyst at HDFC securities, said: “We expect the gold to trade up, with resistance at $1,920 and support at $1,885.”

Domestic physical demand, however, has remained largely confined to investments. In rural areas, there is some demand, but only 30-40 per cent of last year’s. The higher gold price has given some cushion to small and medium-sized jewellers, who had melted their excess stock and paid back bank or gold metal loans.

About the impact of the rising price on gold demand, T S Kalyanaraman, chairman and managing director, Kalyan Jewellers, said: “With its price surging, gold has emerged as a preferred investment option for Indians. Jewellery demand for weddings is expected to be better as other wedding-related expenses on the wane and that money can now be allocated towards investment in gold jewellery. Furthermore, we have witnessed a surge in consumers visiting standalone showrooms. Consumers are also increasingly exchanging old jewellery for new.” 

Globally, demand from institutional players is good. The data for June suggested that in the first half of 2020, inflows in exchange-traded funds were at a record high of 734 tonne, indicating investors pumped record money into gold ETFs. In India, too, since April, ETFs are getting fresh inflows and AUMs are at a multi-year high. 

The silver price is also on the rising but profit-booking has started. Silver is a high beta commodity and its price ratio compared to gold has fallen -- now at 83, above the strong support level of 80. The ratio declining below 80 shall result in a sharp increase in the silver price. 

Nigam Arora, author of the Arora report and prominent US-based analyst, rated gold and silver as “neutral” in the short term. For the medium and long term, he gave a “positive” rating.