Will the gold price rise dampen India’s love for the yellow metal?

Indian gold prices have increased by 23% so far this year. Gold with 24-carat purity also crossed the Rs 50,000 per 10-gram mark recently. But why are we seeing a surge in prices despite a COVID-led uncertainty impacting demand?

In a discussion with Tamanna Inamdar on India Development Debate, PR Somasundaram, MD – India, World Gold Council explains that gold prices started seeing a jump since last August itself. He says it’s primarily due to the interest rate scenario across the globe driven by an almost 0% rate in the U.S. He says we also need to factor in the impact of rupee depreciation and the COVID-related anxiety driving people to gold. “It’s a little bit to do with a flight to safety and a lot to do with the international prices driven by the interest rate scenario and geopolitical anxiety,” he said.

India’s love for gold is very well known but will a steady rise in prices hurt this demand? Prithviraj Kothari, National President, IBJA says, on the contrary people are investing more in gold. “The post-lockdown period has seen a demand for gold ETFs in India. In April and May, approximately Rs 2,000 Cr worth of gold accumulated in gold ETFs”, he said.

PR Somasundaram highlights that gold demand in India is driven by income and not prices. They have observed that a 1% increase in price leads to a 0.5% decrease in demand, on the other hand, a 1% increase in income leads to a 1% increase in gold demand. However, they expect to see an impact owing to the fact that despite gold prices have increased very fast, incomes have not seen a rise.

Some companies expect to see a rush of demand for gold in the wedding season, but experts are not betting big bucks on it as they believe we will see huge behavioural changes now. It’s also becoming difficult to assess when the rally will see an end as COVID-led uncertainty is far from over.

Courtesy Times Now News