Gold prices on the Multi Commodity Exchange (MCX) on Monday hit a record single-day high as investors turned to safe-haven assets following the banking crisis in the US and Europe. the precious metal surged 60,455 per 10 grams (excluding 3% GST) on MCX, while the international price touched a 31-month high of $2,009.21 per ounce (32.10 grams).
The nearly 5% increase in prices in just one week has reduced consumer demand for the precious metal. However, the value of holdings of those investing in sovereign gold bonds and gold ETF schemes of mutual funds has increased.
“It’s a flight to safety,” said Shekhar Bhandari, president, global transaction banking at Kotak Mahindra Bank. That has turned investor sentiment to risk averse with riskier assets like stocks and bonds. This is the best phase for gold, whose safe-haven appeal is likely to continue for the next few quarters.
Gold acts as a hedge against inflation and a safe-haven asset in times of uncertainty. The metal’s surge comes as the US Fed and ECB rushed to create backstops, three bank closures in the US last week, and Credit Suisse being taken over by UBS in Switzerland amid rising interest rate regimes in those geographies. It also comes ahead of the Fed’s rate-setting committee set to raise a benchmark interest rate on Wednesday. Though India is the world’s biggest gold importer, importing a total of 763.7 tonnes of bullion last year, a sudden rise in the dollar’s value and a weak rupee hurt domestic demand for the precious metal.
“Consumer demand has been badly hit by the current price hike,” said Debjit Saha, principal analyst at Refinitiv Metals, LSEG. “The reduction in demand is evident from the $33 per ounce discount ( 840 per 10 grams) at the bank rate in the wholesale gold market here.
Gold mainly comes into the country through banks authorized by the Reserve Bank of India which import the metal on a consignment basis.
However, investment demand through Sovereign Gold Bonds, re-launched by the government in 2015, has started gaining traction with a value of 98 tonnes. 42,955 crore outstanding with customers as on 27 December 2022 21,400 crore of net assets under management by Gold ETFs. “Gold edged to a new lifetime high on the domestic front 60,000, as a wave of banking crisis shook global markets and kept bullion on track for its biggest weekly gain in three years,” said Navneet Damani, senior vice-president, commodity research at Motilal Oswal Financial Services-based exchanges. ) COMEX may trade in the range of $1,985-$2,015 per ounce and on the domestic front, it may trade in the same range. 59,800-60,600.”
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