Gold prices are red hot; thanks to central bank buying, retail demand, safe haven appeal

Business Wednesday 22/May/2024 08:05 AM
Gold prices are red hot; thanks to central bank buying, retail demand, safe haven appeal

New Delhi: Gold, considered a safe haven asset for investment, has been in demand for considerable period of time, with its prices rallying to hit record highs every now and then.

Geopolitical conflict in the West Asia that stretched for long now, buying by several central banks including RBI, physical demand, have altogether pushed gold prices towards northwards.

Gold is a scarce commodity, and any mismatch in demand-supply conditions may invariably trigger sharp price rise.

According to India Bullion and Jewellers Association (IBJA), the yellow metal today traded at its all-time high at Rs 74,222 per 10 grams for the fine gold (999) quality. On Friday, it traded at Rs 73,380.

"Gold is expected to remain volatile, with prices likely to range between Rs 71,000 and Rs 75,000 in the near term," said Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities.

At the global level, gold prices too are at their peaks. They, however, inched marginally down on Wednesday, after hovering near a record peak in the previous session as recent economic data boosted bets that the US Federal Reserve would start cutting interest rates sometime later this year.

At the time of filing this report, gold June futures contracts were 0.6 per cent or USD 13 lower at USD 2,425.40 per ounce. Gold prices remain over 15 per cent higher so far this year.

"Iran's President's helicopter crash prompted a strong push in gold prices on Monday due to fears of renewed tensions between Iran and Israel. However, prices have given up some gains today as no definitive cause for the crash has emerged," Trivedi added.

Global gold demand was up 3 per cent year-on-year at 1,238 tonnes in the first quarter of 2024, marking the strongest first quarter since 2016, according to the World Gold Council's Gold Demand Trends report published earlier.

Healthy investment, persistent buying by central banks, and higher demand from Asian buyers helped drive the gold price to a record quarterly average of USD 2,070 per ounce, 10 per cent higher year-on-year and 5 per cent higher quarter-on-quarter, the Council had said.

Central banks continued to buy gold apace, adding 290 tonnes to official global holdings during the quarter. Central banks often tend to bet on gold when there is any potential uncertainty that may emanate.

Historically, gold, as an asset, is considered to be a haven as it typically manages to retain or appreciate its underlying value in times of turbulence.

2024 is likely to produce a much stronger return for gold than the World Gold Council anticipated at the beginning of the year.

"While gold may still continue to be resisted at the current levels close to USD 2370 - USD 2390, the probability of any deeper corrections looks weak due to central bank demand and retail demand," said Emkay Wealth Management in a note.