Significant hike in Gold prices: Why?

Image Courtesy: Marketwatch

Amid the positive global cues, the gold prices in India have risen significantly this week. On MCX, gold futures settled 0.35% higher at Rs 47,350 per 10 gram. Starting from about Rs 44,000 in the beginning, gold prices in India have jumped almost Rs 3,000 per 10 gram. As for the global markets gold has hit a 7-week hike when it saw a rise of 0.8 % to 1778.04 dollars per ounce.

According to the analysts, the current leg of gold’s uptrend is highly supported by the macro cues. US 10-year bond yields have fallen below 1.6% while the US dollar has also seen a two-week low against a basket of other currencies. Lower yields boost the appeal of bullion and it doesn’t offer interest.

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Shedding further light on the rising prices of gold, Reuters sources reveal that China has given domestic and international banks the permission to import large amounts of gold into the country. This is to mention, China is the world’s biggest gold consumer. Meanwhile, inflation concerns have also helped in this uptrend of gold. Despite the robust US retails sales data and a remarkable drop in weekly jobless claims, gold prices have advanced.

Kotak Securities have advised its customers to buy only on corrective dips. The note released by the company reads: “Gold has edged up as Fed officials seem to have managed to convince bond market players that rates may remain low for a long time. The momentum for gold still looks positive. However, challenges persist in the form of increasing US optimism hence fresh buying should be only at corrective dips.”

Analysts have summarized that the gold price rising above the key resistance level of $1,760 is technically a positive sign for the traders who follow chart patterns. Founder and CEO of Millwood Kane International, Nish Bhatt said, “The rise in the number of Covid cases, fear of the next wave, coupled with rising inflation in the US, lower yields, weak US Dollar, and the QE program by the US government has also provided strength to the gold prices. The current situation of rising covid cases threatens to derail the economic recovery in Q1, create uncertainties. The situation may lead to elevated gold prices in the short term till the situation stabilizes.”

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Yes, the uptrend of the gold prices is very significant. However, it’s still way Rs 9,000 behind the August highs that reached Rs 56,200 last year. Navneet Damani, VP – Commodities Research, Motilal Oswal Financial Services emphasised, “Gold prices have moved higher as US Treasury yields slipped despite better than expected US economic data, pushing investors to bullion as a refuge against possible inflation ahead.”

The concerns regarding inflation are increasing day by day ahead of huge fiscal aids. The ultra low-interest rates across the world have also significantly supported the yellow metal. As analysts suggest, it’s a good time to buy gold as the upward trend seems to stay here for a while.