Gold may not glitter all that well these past few weeks, with its price steadily crashing in the Indian market. Ironically, that could actually be good news for all of us.
Confused? Read on.
Gold price in Delhi market on Saturday was just above 50,000 rupees for 10 grams of 24 carat gold. Prices have been on a steady downswing over the past several weeks, after hitting a peak of Rs 57,000 back in August. In just the last three weeks or so, prices crashed by Rs 4,000.
Consider this – exactly two years ago in November 2018, gold prices were around 30,000 rupees in India. Then, a steady growth ensued over the course of the next several months, culminating in its value peaking nearly double that amount at Rs 56,000 in early August this year.
But from there on, a roller coaster ride ensued, with prices going up and down. And the drop has been persistent in the last few weeks. So what explains such wild fluctuations?
It's a simple rule of thumb actually. When the economy does not do well, or at least seems to be at the risk of dim prospects, gold prices go up while other indices like stocks start falling or fluctuating. This is because gold is considered a safe instrument to invest in, proofed from the vagaries of macro economics. In the last couple of years, gold prices went up globally as well as locally as interest rates flattened and the value of dollar started showing strain. Fears of a full-blown US-China trade war, not to mention chances of a US-Iran actual war, accentuated this trend. Closer home, as the economic slowdown took root, investors increasingly turned to gold as a refuge. As the pandemic struck an unsuspecting globe early this year, it directly translated into a rise in the price of the yellow metal.
As it appears, the reverse now seems to be holding true. After months of uncertainty, there is a glimmer of hope in November, mainly thanks to two developments—the US has elected a new president who promises stability and decorum, while pharmaceutical majors like Pfizer and Astra-Zeneca have announced that COVID-19 vaccine trials have been successful, signalling that perhaps an end is in sight to the coronavirus nightmare. In India, the multiple tranches of government stimulus packages, the faster-than-expected uptick in indices, and robust shopping trends from the Diwali festive season could be cited the reasons.
However, general expectation is that gold price fluctuation could just continue, based on ground realities. As Kodak Securities warned, “Risk sentiment has improved slightly...however, weighing on market sentiment is rising virus cases and uneven global economic recovery.”