Gold prices drops to nearly 8-month lows

The demand for gold is at an all-time high due to dropping prices after a over 25% spike in 2020. The prices are down about Rs 4,000 from the start of the year, and as compared to August highs of Rs 56,200, they remain Rs 10,000 lower.

According to Reuters, dealers were charging a premium of up to $7 an ounce over official domestic prices, which is the highest in eight months. A week ago, they were charging a premium of up to $5, inclusive of import duty and GST.

Traditionally in India, gold has been a safe investment option, but this has changed over the years. It has become an ideal hedge for volatile markets, mainly due to the metal’s scarcity. Analysts point out that this valuable metal is now traded and predicted as a commodity. It has entered the secular bull market as prices rise. Unlike any other commodity, gold has always provided significant returns to its investors. After the March crash due to COVID-19 pandemic lockdown, it managed to break through the Rs 50,000 mark in July 2020.

According to the World Gold Council (WGC), demand for the precious metal reduced in India during the calendar year (CY) 2020 stood at 252 tonnes compared to same period of CY 2019 which was 496 tonnes. Demand for the metal at Q3CY20 was 86.6 tonnes, down 30% from the same period in 2019 to 123.9 tonnes. The value of its demand stood at Rs 39,510 crore during the period under review, down 4% from Rs 41,300 crore in Q3-2019.

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As the year slowly nears its third month, many analysts believe the precious metal is likely to attract buying support at lower levels. It will still benefit from continued loose monetary policy and low real interest rates this year.

Kshitiji Purohit Lead – International & Commodity, at CapitalVia Investment Advisor, said rising US Treasury yields and stronger US dollar has reduced the yellow metal’s appeal among investors. Nish Bhatt, Founder & CEO, Millwood Kane International says the rising treasury yield is indicative of a recovery in the US economy. “The yellow metal has also lost investor’s interest as the vaccination drive picks up pace, new cases are under worldwide,” Bhatt said. “In India, it has lost over Rs 10,000/10gm or 18% from its highs witnessed in August 2020. Going forward, risk of a second wave of cases, easy liquidity, global economic recovery will guide gold prices.”