Gold stocks were still trading in red by 10.50 am on Thursday this week (IST) despite the Federal Reserve’s decision to increase interest rates for the fourth time this year. But even the highly resistant domestic market in India finally got the message – that gold is on a path to recovery. The bullion shortly reported gains only a few hours later at 4.52 pm (IST).
At first, MCX Gold traded at 0.3 percent lower to Rs. 31,132 ($445.5) per 10 grams. MCX Silver didn’t fare any better and fell down to 0.91 percent, trading at Rs. 37,338 ($534.49) per 1 kg at around 10.50 am (IST).
The gold rate surged in the domestic Indian markets in the following hours, keeping in tandem with higher global rates. Gold rates rose by Rs. 150 ($2.15) to Rs. 32,000 ($457.73) per 10 grams. The increase in gold’s value was also supported by local retailers buying more gold to keep their stocks high.
What’s interesting to note is that gold prices had sharply fallen by Rs. 210 just yesterday.
Things looked brighter for silver coins which held their position steady at Rs. 74,000 (1,055.94) and Rs. 75,000 ($1,070.21) for buying and selling 100 pieces respectively.
Global gold prices have been edging higher since last month, and now with the higher interest rates, market analysts forecast that gold will continue to climb higher still in the next few months. What supports this theory is the Federal Reserve’s decision to remain aggressive towards further spikes in interest rates next year in 2019.
Thanks to the increase of 25 basis points in interest rates, the equities market has been hit badly. The dollar’s position isn’t in the clear, with many analysts believing that it will weaken.
Sovereign prices have remained constant trading at Rs. 25,000 per 8 grams.
Gaurav Katariya, Research Head at Arihant Capital markets said in a statement to media outlets that gold prices will continue to make sharp recoveries against the dollar in the future.
Demand in India Still Low
Domestic demand for gold has fallen by a significant amount, owing to fading interest levels shown by Indian youth. This trend has also coincided with a drop in the number of weddings during 2018. Local governments want to revitalize rural interest in gold by doubling income for farmers and retailers alike. Despite the lower domestic demand for gold in India, gold consumption stood at 800 tonnes in 2018, from 737 tonnes in 2017.
The Indian government is also known for its crackdown on ‘black markets’ that use gold for money laundering purposes, combating this trend by raising GST and import tax on gold. This move backfired for local markets which were discouraged by the higher value of gold.
But the growing pressure from global markets will touch base with the bullion industry in India, which will recover its rates. The local retailers also hope to improve interest in the market by selling gold for as little as 1 rupee, or one cent in US dollars.