The first week of April witnessed gold prices crossing the Rs 61,000 mark. After facing a highly volatile year in 2022, gold may also touch an all-time high mark of Rs 65,000 in the coming months. The investment demand is likely to gain pace as investors will buy gold as store value amid rising fears of recession.
Gold has always held a special place in the hearts of Indians. It is not only considered a symbol of wealth and prosperity but also has cultural and religious significance. In India, gold is an integral part of weddings and festivals, and it is customary for families to gift gold jewelry to their loved ones. Hence, gold prices in India have always been a matter of interest and concern. India is one of the largest consumers of gold globally, accounting for more than 20% of the total global demand. This demand is primarily driven by the country’s cultural and religious traditions, as well as its large population. The demand for gold in India is not limited to jewellery, as people also invest in gold coins and bars as a hedge against inflation and market uncertainties.
The first week of April witnessed gold prices crossing the Rs 61,000 mark. After facing a highly volatile year in 2022, gold may also touch an all-time high mark of Rs 65,000 in the coming months. Gold prices in India are affected by various factors, such as global economic conditions, geopolitical tensions, currency exchange rates, and local demand and supply dynamics. International gold prices are denominated in US dollars, and any fluctuations in the value of the dollar can have a significant impact on gold prices in India. A weak dollar tends to increase the demand for gold as it becomes relatively cheaper for buyers in countries with other currencies. Conversely, a strong dollar tends to reduce the demand for gold as it becomes relatively more expensive.
Another important factor that affects gold prices in India is the local demand and supply dynamics. Gold prices in India are largely influenced by the import duties, which are imposed by the government to regulate the inflow of gold into the country. The higher the import duty, the higher the gold prices in India. The demand for gold in India is also influenced by factors such as wedding season, festivals, and crop harvests, which tend to increase the disposable income of people and hence their ability to buy gold.
Gold prices are likely to rise mainly on the back of weakness in the dollar as the US Federal Reserve is likely to pause on rate hikes early next year and may even cut rates in Q4 2023. Due to the IMF’s revised global GDP prediction, reducing inflation, the halt in interest rate hikes, the weakening dollar, and China’s reopening, the global commodities market is anticipated to exhibit a mixed trend in 2023 and the global economy is currently experiencing a slowdown. This is likely to have a mixed effect on the commodities market.
Global gold prices in 2022 had steadily declined despite rising inflation and geopolitical crisis. After hitting the all-time high point of above $2,000 an ounce in March 2022, gold prices have constantly struggled. The prices have been fluctuating ever since US Fed started its hawkish interest rate hikes. Since then, gold prices have fluctuated globally amid the ever-rising US dollar and surging bond yields. In general, the rising rate of the US dollar and bonds is a distraction for gold investors as it is considered a non-yielding asset. In 2023, the investment demand is likely to gain pace as investors will buy gold as store value amid rising fears of recession. Global central banks purchased more than 400 tonnes of gold in Q3 of 2022, the largest single quarter of demand in the last few years. Looking at the current situation and recession fears, the central bank will continue to add gold to its reserves.
Narvijay Yadav is a senior Journalist & Columnist. Views are personal
