Typically, the demand for gold reflects the expectations about the future; the price of the precious metal tends to rise amid uncertain economic situations or political upheaval.

Gold prices at three-year high What this means
Money Gold Monday, August 26, 2019 - 17:57

Gold prices breached the Rs 40,000 mark for 10 grams on Monday morning and reached a three-year high, and silver followed suit as well. This came amidst a trade war, increase in demand and a continuous slide in the rupee’s value.

While gold prices increased, the rupee slipped to its lowest value this year, at over Rs 72 for a dollar. Gold prices increased across the world and reached a six-year high, amid the ongoing trade war between USA and China. 

"This is indeed an unprecedented high, but lower by at least 20% in US Dollar terms. Presently, it is $1,545 on the Comex, lower that $1,920 in September 2011," expert and former All Indian Gems & Jewellery Federation Chairman Bachhraj Bamalwa told IANS. Comex is the market for metals trading. 

Why the price is increasing

Typically, the demand for gold reflects the expectations about the future; the price of the precious metal tends to rise amid uncertain economic situations or political upheaval. 

According to Bamalwa, if the current global political crises and the trade wars continue to escalate, then the gold prices may shoot up further, crossing Rs 41,000 per 10 gm in the next few months.

However, he said that despite the zooming prices, demand for gold may be marginally affected, around 10% or so, as the wedding and festive season begins next month. 

According to commodity analysts, gold becomes a safe place to invest whenever there is uncertainty in global markets. "Gold prices are indicating that the global worries are still intact. This worry has started 2-3 years ago, now that is escalating,"  Kotak Commodities head Ravindra Rao told IANS earlier. 

The Indian government also dampened the spirits of the gold buyers by a hike in the import duty from 10% to 12.5% in the budget.

What now

Gold is still very much considered to be one of the primary investment options of Indians, and is also considered a safe investment option which is highly liquid. Higher prices of gold would mean that that it may be out of reach for consumers, and hence traders believe that along with a slump in sales, customers will choose to recycle their gold in the upcoming season. 

All Indian Gems & Jewellery Federation Chairman Bachhraj Bamalwa said that instead of fresh purchases, people may opt for recycling of old gold, at least up to 25%, in view of the higher prices.

Mumbai Jewellers' Federation President Rakesh Shetty said that sales have declined by over 65%, and hence, recycling of gold will go up. While consumers most certainly have to shell out more for gold, Shetty said that said recycling of gold is as high as 70%.

“People simply prefer to bring in their old gold and pay the making charges for their needs as the current rates are too high. If the current global crises continue, then we expect it to cross Rs 41,000 for 10 gram by Diwali, which is not a healthy sign for the industry," Shetty told IANS.

According to the Times of India, the Bengaluru Jewellers’ Association said that their sales had come down to 20-25%. 

With IANS inputs

Read: Is gold really a good investment?

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