Gold: Higher the price, lower the demand
Before Diwali, its Dhanteras and the festival comes with the ancient ritual of buying gold ornaments to invite prosperity in our homes. As the Indian Economy is going through a rough phase, this year, Dhanteras might go a little less festive as compare to previous years due to a rise in gold prices in the domestic market and economic slowdown. Empty pockets and awaited expenditure might make everyone upset these upcoming festivities.
Gold in Festive Season
On the festivity of Dhanteras, Gold sales reach a point of 40 tonnes every year. But this year due to the slowdown in Economy, weak demand and higher prices, 40 tonnes will be a much greater target to conquer.
Gold imports have decreased due to higher prices and an increase in import duty. India imported only 26 tonnes of Gold in September this year, while it was 81.71 tonnes a year ago. The imports directly fell by 68.18 per cent, as compared to last year.
According to market experts, after the increase in the import duty by Central Government on precious metals from 10 per-cent to 12.5 per-cent in the Union Budget in July this year, gold imports have plunged to a multi-year low.
Gold is often bought in wedding seasons festivities, and then there is a regular demand. Regular demand is profoundly affected due to the liquidity crisis in the market. Gold is traded as an inflation hedge and wealth preservation asset by investors, who seek a haven during times of high market volatility.
Gold in domestic land
There are different categories of Gold available in the market, the most popular is 24-carat and then 22-carat Gold. Last month, 22-carat gold was trading at Rs 39,190 per 10 gram and 24-carat gold rose to Rs.39,340 per 10g in the Indian market. Gold prices have touched Rs.40,000 many times in the past few months.
People are moving towards alternatives to buying Gold, there is a steady increase in several people who tend to sell scrap gold instead of buying new ones. As per reports, the Gold sells are 50% as compared to last year in the domestic market. People prefer to buy more gold coins instead of gold ornaments.
On October 19, 2019, 24-carat Gold was trading at Rs.38,180 per 10g. It is slightly lower than the trading prices for last month. It happened due to the latest Brexit deal between the EU and the UK, causing an increase in the demand for Gold.
Gold in the International Market
Prices have increased upto 25% in the domestic and international markets, since the starting of this year. In the international market, after surging to a six-year high, spot gold corrected slightly. However, prices managed to stay above the $1,500 an ounce.
The latest Brexit deal between EU and UK might have played a significant role in lowering the price of Gold and increasing its demand, but as China released its GDP growth data, it turned out to be lower than expected Q3 GDP. It is considered the weakest pace for China’s Economy in the last 27–1/2 years due to the Sino-US war hitting demand at a global market.
The trade war between the US and China is another reason for high gold prices. Central banks of India, New Zealand and Thailand have cut down their interest rates to scramble their Economy from US-China trade wars. Lower interest rates often decrease the opportunity cost of holding non-yielding assets like bullion such as Gold, silver and other metals.
Further considering the tensions in geopolitical regions, the warlike situations between the US and Iran, and the attacks on Saudi Arabian oil fields by Houthi rebels have consistently been watched by the world’s economists. As a result, it will push gold demands while investors will seek to trade on soft assets such as land, cash and monetary funds.
Conclusion: Between September to December, a season of festivities arrive in Indian land with the ring of wedding bells. This month, there is a hike in gold sales in the domestic market. But this time, due to an economic slowdown and higher prices, the demand for Gold is lower as compared to previous years. Global events like a one and half-year-old trade war between US and China, US and Iran conflicts, attacks on Saudi Arabia’s oil fields and latest Brexit deal between UK and EU has its impact on demand and pricing of Gold in Global market.
