Gold Glitters Globally
Written By: Praveen Singh
GOLD the royal yellow metal considered as safe haven globally for parking money when the Geopolitical environment turns hostile. It is also about having emotional connection, especially with women. In India, it is extremely difficult to persuade a woman to dispose of Gold. However, as it is an internationally traded commodity hence it is easily available to all those who want to invest and trade in Gold.
India holds the position of being the world’s second largest consumer of Gold with almost all supplies coming from imports. The Indian government imposes 15% import duties on Gold to regulate its import and generate revenue. An increase in Gold price leads to higher import value, which in turn results in increased revenue for the Government through import duties. Gold also forms a significant part of India’s Forex reserve and increase in Gold price will lead to a big boost to India’s forex reserve.
Recent increase in the Forex reserve of India was largely due to the increase in the value of RBI’s Gold holding, which went up by $2.4 billion on the week ended 5 April 2024. Although it changes with change in Gold prices, currently, the value of Gold reserve in India’s Forex reserve is approximately $55 billion.
For citizens of the country Gold is considered as a store of value, symbol of wealth and status and is a fundamental part of many Indian rituals and a major one is marriage. 50% of annual Gold demand is generated in Indian – society weddings. Unprecedented rise in gold price will surely hamper fresh demand but all those who are owners of this asset will be benefited.
Investors are always curious to know about the main factors that affect Gold price movement globally. These Factors are as mentioned below:
Demand and supply
Exchange Rate: Gold price is negatively related to US Dollar index i.e. Strong US Dollar leads to weakening in gold prices globally and domestically and vice-versa.
Interest Rate: Gold has negative relationship with interest rate movement i.e. Interest rate increase leads to fall in Gold prices and Interest rate cut leads to increase in Gold prices.
Inflation: Gold has positive relationship with Inflation i.e. High inflation leads to increase in demand for Gold as it is considered a safe haven and hedge against Inflation.
Equity Market: Gold has a negative relationship with the Equity market i.e. if return from the equity market is looking good in present and near future then demand of gold decreases leading to softening in its price and vice versa.
Gold price has climbed over 17% so far this year. All economists and financial analysts are surprised to see such a huge rally in Gold, which is known for its safety and stable return. Main reason for such a bullish trend is explained below in few pointer:
The US Fed chairman has signalled 2 to 3 interest rate cuts this year as the US economy is showing signs of stability.
Geo political tension is increasing day by day. Recently Israel attacked the Iran Embassy in Syria killing Iran’s 7 top generals and in response Iran has also retaliated by firing drones and missiles on Israel. Chances of a full-fledged war between Iran and Israel has increased. Side by side, war between Russia and Ukraine is still on. Because of these developments, investors are feeling nervous and looking for a safe asset to park their money and hence demand for Gold is going up globally.
Gold prices are moving up due to “phenomenal” demand from Chinese Investors because they are looking to hedge against the potential economic instability of the world’s second largest economy amid a commercial real estate crisis in China.
Gold purchase by central banks globally is at Five decade high leading to a bullish outlook for Gold as a commodity.
US has presidential election in NOV 2024 and potential for Republican presidential candidate Donald Trump will heighten tension between US and China which is driving investors towards Gold as it is considered as a safe asset to invest.
Gold Outlook for FY 2024-25: Gold as a commodity will show a bullish trend this financial year. Some technical correction can be seen in Gold price as inflation figures are not softening in the US due to which the first rate cut which was expected in June 2024 may be prolonged by Fed Reserve but overall trend will remain positive. In the present time, the non-stop rise in Gold price is quite unusual as it’s not in accordance with set rules and theories because all parameters like interest rate, dollar index, and equity market are at their highest point but still Gold is moving up and up. This has to be corrected and will be corrected in near future, which will be an opportunity to buy Gold.
It is difficult to predict percentage increase in Gold prices globally but looking at worsening Geo political tension which will tempt investors to look for safety Investing a part of your investible surplus in Gold and Gold related instruments like SGB (Sovereign Gold Bond), Mutual Fund Gold ETF fund and multi asset allocation fund can enhance overall portfolio return.
Writer: Praveen Singh
A visionary Financial Analyst and wealth management expert. Armed with an MBA in Finance and an MSc in Statistics, My expertise transcends conventional boundaries. As a certified trainer, I illuminate the path to financial success, empowering individuals and organizations alike. With a keen eye for detail and a passion for excellence, I am a beacon of knowledge in the realm of finance, guiding others towards prosperity.
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