If you are told that the US President Donald Trump is responsible for a constant surge in the prices of precious metals gold and silver, you might not have believed. Analysts however say Trump’s announcement that he would be imposing penal import duties on Chinese imports to the US, brought the stock markets all over down, resulting in the investors choosing gold and silver to trust their funds in. The term being used to describe this reaction is asset safety. When investors believe that their funds are safer locked up in these metals than in the volatile stocks and shares, the direct impact is that the prices of these metals shoot up on demand.
Monday’s quotes on MCX showed gold contracts for August were pegged at Rs 36,192, a rise of 1.73% and for October, the contracts were being offered at Rs 36,904, up 1.75%. These are for 10 gm of gold and are new highs. The other metal Silver too showed an identical trend rising to Rs 42,366 a kilo, up 2.42% from the previous rate. This is for September contracts.
These Indian metal and commodity exchange market rates were simply reflecting the global trend with the yellow metal being sold at $1450.41 an ounce, considered significant since $1450 is considered a threshold rate for the metal. The increase registered was 0.65%.
As mentioned, the only explanation being offered for this upward trend in the prices of gold and silver is a reaction to the kind of trade tensions being witnessed between the US and China. The US President has announced that Chinese imports to the tune of $300 would be slapped with import duty of 10% and China says it will retaliate with its own moves. This sabre-rattling from both sides has resulted in a bloodbath at the stock markets all over. This has been further compounded by the interest rate cuts being announced by various central banks, including the Federal Reserve in the US and the RBI in India. There have been prophesies of an impending global slowdown as well. Such sentiments do have an impact on the stock markets. Interestingly, the analysts are ready with the observation that this could be an indicator that the stock prices may remain subdued for some time going ahead.
The current increases in the prices of gold and silver are seen as record increases in the past two years. The last time such a strong sentiment was witnessed was perhaps in 2017.
The Indian scenario follows a different path with demand for gold shrinking due to increasing prices of the metal. Customers either postpone buying gold jewellery or limit it to exchanging their old jewellery for new. The Indian government has already dampened the spirits of the gold buyers by a hike in the import duty from 10% to 12.5% in the budget.