Gold Prices Have Surged in Local and International Markets

Gold has always been appealing to investors as a hedge against inflation and a safe asset in times of economic distress. Due to its low correlation with other asset classes, it can be regarded as a shelter from turbulent markets or geopolitical tensions.

In India, the consumption of gold comes especially towards the end of the year, as the demand comes from the festive and the wedding seasons. But as per the recent surge in international prices of gold, domestic landed prices still lag behind.

Economic Growth

During bad phases in the economy, gold is seen as a safe haven for investment. Gold has also the additional characteristic of low correlation with other asset classes, which means it can be used as a hedge during times of high volatility and conflicts in the world. Because of these reasons there has been a strong investment demand for the metal through 2024.

Also, and as many central banks around the world do this, gold reserves are steadily increased. This persistent demand could help to maintain the gold prices at high levels for the longer-term.

Last but not least, the zero-yielding metal becomes more attractive to investors when interest rates are lowered. And with more rate cuts from the Federal Reserve, the Western investors should start coming back to the gold market, where they have largely been absent during the rally this year.

The increase in pricing has also been caused by growing inflation in many of the larger economies and regional conflicts. The actual conflict between Israel and Hamas, for instance has made a lot of gold investors as the precious metal has a reputation of being a useful reservoir of worth during insecurity. Further, the declining strength of the US dollar has made countries that are not friendly to Washington to stock gold as a means to backup their assets away from the Dollar.

INFLATION

One of the main drivers of the gold price is inflation. Increased inflation lowers the value of money and causes investors to look for alternative options to gold. Furthermore, inflation concerns are often a good proxy for the level of demand for jewelry and other forms of physical gold products.

Both private as well as institutional investors and central banks continue to invest in gold for its inflation hedging capabilities. The World Gold Counsel proudly noted a noticeable rise in cash proceeds into gold ETFs during the period. More investment flowed into North American, European and Asian funds, which was observed in the week ending 18th October.

The latest spike in prices quite substantively indicates that the yellow metal is indeed still in vogue. But it also shows the investment risks associated with the precious metal.

While investing, people must be concerned with inflation and interest rates, including when The Federal Reserve is likely to raise or lower interest rates. Furthermore, investors must assess the repercussions of the prevailing crisis in Ukraine and other political crises around the world on the gold market.

Gold imports into India had sharply risen in August before significantly declining in September. The fluctuations were largely because of the peak and the subsequent dip in festival purchases. Nonetheless, owing to high seasonal demand, domestic landed prices were still higher than the price at which the government had imposed a duty cut to enable cheaper imports of gold at the average price of Rs63,225 per 10 grams. It is expected that such a trend will be sustained through the festive season. Domestic landed prices are also expected to be bolstered by steady re-exports to the Middle East and China, as well as growing rural markets.

Interest Rate Cuts

The US Fed 50 bps interest cut has stroked higher gold prices on the local and international market. The rate cut has resulted to a depreciation of the dollar which has also increased the demand for the metal as a safe-haven investment. According to the projections set by the Fed, rates are likely to decline this year and the following year again.

Interest rates are a factor that affects the purchasing power of gold and the cost of money for homeowners and borrowers, but gold is a non-yielding asset and therefore exerts minimal impact on interest rate changes compared to stocks and bonds.

Moreover, this has led to an increase in demand from central banks who are making purchases of gold as a way of staggering their reserves. This, in turn, has changed the historical negative correlation between interest rates and the price of gold. But probably the most important thing is to understand how gold can help to enhance one’s performance based on the broad field of one’s strategy.

Over the past few years, a combination of internal and external factors have contributed to the high rise in gold prices. Factors such as capital search, conflicts, wars, and even the expansion of consolidation policies have all caused spikes in demand. Such trends are likely to persist in the foreseeable future, but with a particular focus on diversification of portfolio and search for the opportunities for the long run. The most recent surge in price has also demonstrated that this is a good time to increase gold position. In order to learn more on investing, consult a licensed wealth management advisor today.

Political Unrest

Due to geopolitical situations and a weaker US Dollar, gold is finding more demand. International prices adapted for import tariffs and exchange rate in the country have shot up, hitting Rs 75,549 per 10 grams in September. Quite the contrary, easing of monsoon and wedding demand are likely to start supporting prices in the allow region.

In addition, the increasing purchases of central banks of emerging markets explains the vertical trend of the metal lately. Because of the rising financial sanctions and geopolitical situations, these central banks are trying to increase their stock of gold as reservers which do not comprise dollar currency assets.

Moreover, normal demand for gold started to pick up due to a moderateness in gold import duties. Analysts believe that the slashing of duties is potentially supportive for retail jewellery dealers in achieving their targeted sales for the year. Further, the demand is expected to grow in the future as festival and wedding buying is also likely to push purchasers to the showrooms. In addition, the authorities in India are also among those planning to lower interest rates in an effort to control inflation and stimulate the economy. It is well known that interest rates and gold price have an inverse relationship. As the interest rates increase, the demand for precious metals declines as investors seek other riskier assets like equities.