Gold demand drops up to 15% in metros in a fortnight on price volatility

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Gold demand in the metros has declined by 10-15 per cent in the last fortnight compared to the previous fortnight due to volatility in the prices of the yellow metal. Prices of gold have fallen by 4.67 per cent in the last fortnight from Rs 49,000 per 10 gm to Rs 46,700 per 10 gm raising hopes among the consumers that there will be a further drop in prices in the coming weeks when they will make fresh purchases.

Talking to ET, Ashish Pethe, chairman, All India Gem & Jewellery Domestic Council said “The volatility in gold prices is impacting demand in the metros though the demand remains intact in the rural areas. In the last fortnight, urban consumers have been keeping a close watch on the price movement before taking decisions to buy gold.”

Gold prices have witnessed much needed correction from the all-time high made in 2020 with COMEX spot gold prices trading near $1770 per ounce falling by nearly 15 per cent. Gold prices in India have declined by nearly 18 per cent from all-time highs trading near Rs 46,000 per 10 gram in MCX witnessing additional pressure from rupee appreciation.

The vaccine rollouts and strong optimism over economic recovery have led to some liquidation in the precious metals with risk-on sentiments. The rally in US bond yields and dollar recovery has kept bullion prices lower for the last few months.

“Many investors in India are now looking to buy gold who were waiting for long for prices to come down. We believe this is a right opportunity for investors to enter in gold investment as prices are in correction mode for the short term at least till March end. The price range of Rs 46,000-Rs 44,000 per 10 gm should be considered to accumulate gold in systematic manner if not in lump sum investment,” Tapan Patel, senior research analyst, HDFC Securities.

The loose monetary policy from major central banks and the expansion of the balance sheet of central banks are the key factors that can boost demand for yellow metal in the long term with a price target of Rs 51,800 -Rs 58000 per 10 grams.

‘The coronavirus crisis is still a developing story as variants from the UK, Brazil and Africa are still a concern for many regions which may keep risk premium high keeping downside limited,” Patel said.

Added Sriram Iyer, senior research analyst at Reliance Securities “Investor optimism for a global economic recovery raised US treasury yields and made the precious metal less attractive. We have seen much buying tied to progress being made towards the $1.9 trillion stimulus plan either over the last month or so.”

However, the new stimulus plan could be used to provide support for a struggling economy that may be on the brink of recovering quickly. And pumping in money at an economy that is on the tipping point of strengthening suggests that the US government is expecting the economy to rebound and the fears which were seen in the markets last March and April do not exist anymore.

“So, there is no incentive for inventors to buy gold now and if US treasury yields continue to rise, we could witness investors could lock in higher returns and move out of the non-yielding gold,” Iyer added.

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