Gold shines as demand for safe haven asset strong; Infomerics Ratings anticipates 10% price jump this year
Aug 7, 2024, 22:59 IST
After a 10.2% increase last year, gold prices are expected to rise another 9.9%, Infomerics Ratings said in a report, attributing largely to the Middle East crisis involving Iran and Israel.
The dragged geopolitical crisis in the Middle East has spurred a rush into safe-haven assets such as gold. Historically, gold, as an asset, is considered a haven as it typically manages to retain or appreciate its underlying value in times of turbulence.
"But this rise would now partly be offset by the reduced duty cut (in India)," said the Infomerics Ratings report.
Historical trends, such as the surge during the Russia-Ukraine war, highlight gold's role as a safeguard against inflation and market instability during global uncertainties.
Prices of gold, considered safe investment bets, have seen a mild correction after the latest stellar bull run. Gold has been in demand for a considerable period, with its prices rallying to hit record highs now and then. Geopolitical conflict in West Asia that stretched for a long time, buying by several central banks, including the RBI, and physical demand, have altogether pushed gold prices northwards.
Gold is a scarce commodity, and any mismatch in demand-supply conditions may invariably trigger a sharp price rise.
"Gold's diverse uses, in jewellery, technology and by central banks and investors, mean different sectors of the gold market rise to prominence at different points in the global economic cycle. This diversity of demand and self-balancing nature of the gold market underpin gold's robust qualities as an investment asset," said Infomerics Ratings.
Festive season buying, a weak dollar, uncertainty surrounding the US elections, and possible Fed rate cuts in September could raise prices, the report noted. In the wake of the presentation of the Union Budget on July 23, 2024, by the Finance Minister, gold prices in India declined sharply.
Finance Minister Nirmala Sitharaman slashed the import duty on gold from 15% to 6% in the Budget presented on July 23. Days after the Budget, gold became cheaper by Rs 6,200 in most states of India. In the capital Delhi, the price of 10 grams of 24 carat gold came down to about Rs 69,140.
"With surging demand for gold, especially as the wedding season approaches, gold prices are likely to rise this financial year, driven by escalating geopolitical tensions, robust central bank buying, and expectations of US Fed rate cuts." Infomerics Ratings report said.
Touching upon regulatory structure and challenges in the gold sector, the report noted that the regulatory landscape for the gold industry in India is fragmented.
"The regulatory landscape for the gold industry in India is fragmented, involving multiple circulars and notifications from various authorities such as the RBI, Ministry of Finance, Ministry of Commerce, DGFT, Customs, and others. This patchwork of regulations leads to confusion, inefficiency, and difficulty in compliance, as stakeholders must navigate through numerous documents to understand the rules," the report read.
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The dragged geopolitical crisis in the Middle East has spurred a rush into safe-haven assets such as gold. Historically, gold, as an asset, is considered a haven as it typically manages to retain or appreciate its underlying value in times of turbulence.
"But this rise would now partly be offset by the reduced duty cut (in India)," said the Infomerics Ratings report.
Historical trends, such as the surge during the Russia-Ukraine war, highlight gold's role as a safeguard against inflation and market instability during global uncertainties.
Prices of gold, considered safe investment bets, have seen a mild correction after the latest stellar bull run. Gold has been in demand for a considerable period, with its prices rallying to hit record highs now and then. Geopolitical conflict in West Asia that stretched for a long time, buying by several central banks, including the RBI, and physical demand, have altogether pushed gold prices northwards.
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"Gold's diverse uses, in jewellery, technology and by central banks and investors, mean different sectors of the gold market rise to prominence at different points in the global economic cycle. This diversity of demand and self-balancing nature of the gold market underpin gold's robust qualities as an investment asset," said Infomerics Ratings.
Festive season buying, a weak dollar, uncertainty surrounding the US elections, and possible Fed rate cuts in September could raise prices, the report noted. In the wake of the presentation of the Union Budget on July 23, 2024, by the Finance Minister, gold prices in India declined sharply.
Finance Minister Nirmala Sitharaman slashed the import duty on gold from 15% to 6% in the Budget presented on July 23. Days after the Budget, gold became cheaper by Rs 6,200 in most states of India. In the capital Delhi, the price of 10 grams of 24 carat gold came down to about Rs 69,140.
"With surging demand for gold, especially as the wedding season approaches, gold prices are likely to rise this financial year, driven by escalating geopolitical tensions, robust central bank buying, and expectations of US Fed rate cuts." Infomerics Ratings report said.
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In India, gold has strong cultural and religious significance. As per World Gold Council, India is one of the largest consumers of gold jewellery, accounting for about 25% of global gold demand. The demand for gold in India is primarily driven by weddings and festivals, making it an integral part of the country's culture and traditions. Touching upon regulatory structure and challenges in the gold sector, the report noted that the regulatory landscape for the gold industry in India is fragmented.
"The regulatory landscape for the gold industry in India is fragmented, involving multiple circulars and notifications from various authorities such as the RBI, Ministry of Finance, Ministry of Commerce, DGFT, Customs, and others. This patchwork of regulations leads to confusion, inefficiency, and difficulty in compliance, as stakeholders must navigate through numerous documents to understand the rules," the report read.