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Omicron scare may increase demand for gold in India

Investors are withdrawing from risky assets and keeping an eye on a safe haven

With the increase in customs duty, coupled with a 3 per cent GST, the overall taxes on gold will come to 15.5 per cent | Reuters Representational image | Reuters

The spread of the new COVID-19 variant Omicron has raised apprehensions that it may increase demand for the yellow metal in India as there is still volatility and growing concern in the market. It has been observed that gold prices have been registering a steep fall over the last week and the prices remained in a narrow range even after the fall due to Omicron. Experts with whom THE WEEK spoke said that investors are withdrawing from risky assets and keeping an eye on a safe haven.

“The new version of the virus has spread in so many countries and due to its increasing influence, the possibility of strengthening the safe haven, demand may increase,” said Abhishek Chauhan, head of Commodity and Currency at Swastika Investmart. “The cases of Omicron have also been found in India, as infected people had no previous travel history, due to which it is estimated that the speed of its spread is rapid. If the effect of the virus increases in the coming days, then it can support the price of gold. As of now, there are no more fatal consequences, but it is capable of slowing down the pace of the economy, due to which the demand for investment in precious metals may increase.”

He said that gold prices may remain under pressure while the US Fed signalled that asset shortages and interest rate hikes will accelerate earlier than expected to ease inflationary pressures. “The US data released last week showed 2,22,000 initial jobless claims were filed throughout the week, better than expected. As moving against gold, the dollar remains strong while US bond yields remain volatile. The current situation of the pandemic may support gold prices while the effort of central banks' to control rising inflation may keep the upside limited for gold. However, the technical chart shows that gold prices may test Rs 50,000-52,000 per 10 gms of gold levels in a few months. It has support at Rs 46,800,” added Chauhan.

According to the US Federal Reserve Chair Jerome Powell, the new variant could slow the global economy recovery and prolong supply chain disruptions that are fuelling runaway inflation. “While the Fed's aggressive stance, Omicron concerns, the dollar's impact, and US treasury yields are all likely to influence gold, the precious metal may be waiting for a new fundamental spark, along with other factors. Looking at the economic calendar for this week, the most recent US inflation data, which is due this Friday, could provide the impetus.

On the daily charts, gold prices have been locked in a wide range, with support of Rs 47,400 per 10 gm of gold and resistance at Rs 48,200 per 10 gm. A strong break and daily close over Rs 48,300 might pave the way for a move to Rs 49,000, 49,500, and 50,000. If Rs 47,700 proves to be shaky support, then it may drop to Rs 46,500 or 46,000,” said Kshitij Purohit, Lead Commodities and Currencies, Capital Via Global Research Limited. 


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