Gold leaves markets perplexed

Gold Prices are up by 25% over the last six months, currently hovering above $2,400 per ounce. Safe-haven gold gained on Thursday as persistent tensions in the Middle East added to the metal’s appeal despite robust economic data from the U.S. that raised prospects of fewer interest rate cuts.

Among the other factors demand for gold plays a very important role in the determination of gold prices. However, despite its high rates, gold always seems to be in demand.

Gold is bought for auspicious occasions like weddings and diverse festivals in India.

Its also seen as a safer option for investors in the volatile global market.

Domestically, political events and government policies are likely to affect gold prices, while other factors like international political events and major economic changes of global significance may also impact gold prices, as stated by Bullion King of India, Prithviraj Kothari.

Let us look at how some global events have impacted gold prices through the years.

After hovering at a lifetime high in March, markets thought that it was a bubble and gold will come crashing down. But day on day, gold has been marking new highs while reaching its peak of $2431.53 in April 2023.  This sudden surge can be attributed to various factors at play throughout the world.

Inflationary influence- perceived as a relabel store of value during inflation, heightened demand for gold is seemingly acting as a hedge against inflation.

Middle East War- While the Ukraine-Russia war was not enough to disrupt peace, the world witnessed another war crisis The Middle East tension has risen after reports of Israel’s “missile attack” in an Iranian city, which has fuelled the Iran-Israel war.” The missile launches come after Iran launched an offensive on targets around Israel on Saturday last week, according to Israeli military authorities, in which the nation fired a barrage of over 300 unmanned drones and missiles. Because of rising geo-political tension in the Middle East region, gold prices witnessed buying interest during the early morning session on Friday.

Banks- Demand for gold from various central banks all over the world has been a great supporting factor for gold.

US Influence – As per Prithviraj Kothari News, high gold prices can also be attributed to global investors expecting the US Federal Reserve to cut its benchmark interest rates. Experts believe that by cutting rates, borrowing costs will decrease, hence promoting businesses to take loans to hire more people and expand production. This will likely help in boosting the economy. However, the US Federal Reserve recently decided to leave the key interest rates unchanged.

Chinese contribution – amid an economic slowdown in China, gold demand has been on the rise, with China piling up its gold reserves. The second-largest economy in the world has been buying tonnes of gold. Even the Chinese central bank has been adding a substantial quantity of gold to its reserves, which is driving the increase in gold prices.

While some experts believe that higher gold prices will lead to an increase in the import bill for gold, affecting India’s trade balance and increasing the pressure on foreign exchange reserves. Other believe that demand for gold jewellery will be subdued in the June quarter due to restrictions on gold movement during elections.

Economic indicators-   Key economic indicators released today also play a critical role in shaping market sentiment:

  • S. Unemployment Claims dropped to 212,000 from the previous 215,000. The Philly Fed Manufacturing Index experienced a significant jump to 15.5, far surpassing expectations.
  • Meanwhile, Existing Home Sales slightly declined to 4.19 million from 4.20 million, and the Conference Board’s Leading Index adjusted down to -0.3% from -0.1%.

As the International Monetary Fund (IMF) meetings continue today, further developments are expected to influence the global economic landscape and, consequently, the gold market.

GOLD IN INDIA – As per Prithviraj Kothari’s view on Gold, Gold has beaten all assets in its class in terms of generating returns. In the domestic markets gold reached lifetime highs and this sudden surge kept markets perplexed as it happened too fast.

The following chart shows the surge in gold prices over the years and how it has once again proved its appeal of being a safe haven asset during uncertainties.

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