MUMBAI: Gold prices in India scaled an all-time high of Rs 57,300 per 10gm on Tuesday on the back of a 20% surge in the international rate over three months. The rise was aided by the weakness of the dollar – the yellow metal has an inverse relationship with the greenback.
On Tuesday, gold prices on the Multi Commodities Exchange (MCX) as well as in physical markets broke above the Rs 57,000-per-10gm mark. And given the global and local circumstances, analysts expect gold to scale the Rs 60k milestone soon. Wedding season demand is also helping the rally, industry players said.
The dollar has been strengthening against most major currencies since the US Federal Reserve has been on a rate-hike spree. This in turn led to weakness in gold prices. As a result, from a 2022 high of about $1,950-per-ounce in early March, it crashed to a low of $1,636 by early October. As the talks about a slowdown in Fed’s rate hike decisions started doing the rounds, the gold also started its northward move. This came along with the weakness of the dollar.
The primary reason for the rally in the yellow metal is the weakness in the dollar, according to Kama Jewelry’s MD Colin Shah. “The US Fed hinted at a slower rate hike or at the most a last rate hike of 25 basis points (100bps = 1 percentage point) in this cycle. The recession fear in the West is also providing strength to gold as the pressure on dollar is mounting,” Shah said.
In the local market too, after falling below the Rs 50,000 mark during October-November 2022, the price of the yellow metal is on an upward move. During this period, domestic gold prices were more resilient, particularly due to the sharp depreciation of the rupee, which fell by more than 10% in 2022, a report by Kotak Securities said.
With talks of a recession in the US and Europe doing the rounds, analysts are expecting gold price, which is considered a hedge during economic downturns, to rally. According to Kotak Securities’s Ravindra Rao, since 1973, gold prices have rallied in the five of seven recessions in the US. “Gold might finally get the recession it needed to glitter in 2023,” Rao said.
“World Gold Council research suggests that the yellow metal has been a top performer among asset classes during periods of stagflation. A period of stagflation is a reasonable scenario for (first half of 2023), though regional differences exist,” the Kotak Securities report added.
In the international market, gold is expected to go beyond its all-time peak of $2,078. In the domestic market, Rao has a price target Rs 60,000-62,000 for 2023. However, “if inflation continues to slow and the US Fed takes a pause in its rate hike spree, then the target price could be achieved earlier during the first half of 2023”, Rao said.