The price of gold in India hit a record high, surpassing Rs 46,000 per 10 grams for the first time, although physical buying is still suspended in the domestic markets because of the Covid-19 lockdown.
India’s gold futures
Independent community Multi Commodity Exchange (MCX) India shows that the June gold futures of the country reached Rs 46,385 per 10 grams on Monday after a nearly Rs 1,000 or 2% increase from its previous close. Gold futures are exchange-traded contracts to buy and sell a certain amount of gold but for future delivery dates. This means that the buyer doesn’t have to pay up just yet or not in full and the seller won’t have to deliver any gold just yet either. The actual exchange takes place on the settlement day, usually three months ahead.
May silver futures also rose 0.5% to Rs 43,725 per kg. According to stock market news provider Livemint, India’s gold prices include the 12.5% import duty and 3% goods and services tax (GST).
The overall trend of gold in the country “looks positive,” the daily added. On the other hand, gold rates in the global markets were flat although it managed to hold onto the near one-month high. The stimulus measures shared by the US Federal Reserve as well as the concerns over the economy amid the health crisis has helped support the gold.
The spot gold, which refers to the price at which gold may be bought and sold right now as opposed to a future date, was at $1,690 per ounce. Silver also increased 0.5% ($15.40) and platinum eased 0.3% ($745.74).
Investors look for safe havens amid a pandemic
Insurance service company Geojit Financial Services’ head of commodity research Hareesh V. said that the large-scale quantitative easing measures (introduction of new money into the money supply) by the central banks move gold prices higher. He said that many investors look for safe havens, fearing a global recession caused by the economic impact of the pandemic. Also, having a strong dollar and moderate physical activities may have limited major gains in the market.
On the technical side, Hareesh V. added that the bullish momentum will continue, which means that the price is rising in trade stocks. This may go on as long as the London spot will stay beyond $1,642. He also mentioned that the Intra-day resistance will be at $1,695. In the financial world, intraday means “within the day” and is used to describe securities that trade on the markets during regular business hours. A direct break above that intra-day resistance could move the prices towards $1,740 levels.
The US Federal Reserve has recently announced a stimulus package worth $2.3 trillion to boost small and mid-sized businesses and local governments. On Thursday as well, the finance ministers of the European Union agreed on half-a-trillion euro support for their economies that are affected by Covid-19.
Internationally, the investment demand for gold is increasing. The holdings of the world’s largest gold-backed exchange-traded fund SPDR Gold Trust, which offers investors an innovative and cost-efficient way to access the gold market, increased to 994.19 tones or 0.56%.
A gold-backed exchange-traded fund, which is an investment fund traded on stock exchanges, has also witnessed inflows in the 2019-2020 period as the pandemic incited the safe-haven buying. Such a type of security is a passive investment instrument based on the price of investments in physical gold or price movements.
Physical buying of gold in India is still suspended today while the country is on lockdown. Jewelers are not yet placing orders even for May because of the uncertainty of the lockdown extension. The country’s gold imports declined more than 73% year-on-year in March as the travel restriction squeezed the demand in retail.
|India's gold imports declined more than 73% year-on-year in March as the travel restriction squeezed the demand in retail. / Photo by: JenWalters via Shutterstock|
India gold production
The World Gold Council states that India is one of the largest markets for gold. The transition metal also has a central role in India’s culture. It is not just considered as a symbol of status and wealth, but is also an important part of many rituals and treated as a store of value in the country. In the rural population, people have a deep affinity for gold because of the security and portability of jewelry as an investment.
The country’s gold production was recorded at 1,400.000 kg in December 2017, a decrease from the previous 1,700.000 for December 2016. This was based on the global economic data platform CEIC. India’s gold production data reached an all-time high in 2000 at 6,200.000 kg and a record low in 2017 at 1,400.000 kg.
Gold imports by country
India is one of the top three countries in the world that imported the highest dollar value worth of gold in 2018. Switzerland came in first, importing US$63.3 billion or 22% of total gold imports, while China imported $45.8 billion (15.9%) worth of gold. This is followed by India: $31.8 billion (11.1%), United Kingdom: $25.6 billion (8.9%), Hong Kong: $23.6 billion (8.2%), Singapore: $13.5 billion (4.7%), Thailand: $11.4 billion (4%), Turkey: $11.3 billion (3.9%), United Arab Emirates: $10 billion (3.5%), and United States: $9.6 billion (3.4%), according to trade metrics platform World’s Top Exports.
Meanwhile, the fastest-growing markets for gold since 2014 were Cambodia, Singapore, Turkey, and Thailand.
Importance of gold in Indian economy
Associate professor in PG commerce Dr. S. Amutha Rani and M.Phil. scholar K. Vijayalakshmi explained in a study the importance of gold in the Indian economy. The authors note that “most of the gold that the entire world holds lies in India.” Although it is a poor country, India has expensive taste. In Indian society, people’s earnings are spent on big weddings and 35-50% of the wedding expenses go to the purchase of gold and other jewelry. As part of their custom, the gold is gifted to the bride and it also symbolizes the status of the family. Gold is usually passed down from generation to generation and is considered a type of savings or investment that may rescue a family during a huge financial crisis, such as during the 2008 global financial crisis.
Gold is often used to offset inflation as its supply does not change year to year, unlike paper money. As the world is battling a pandemic, it reflects how demand for gold is intertwined with a desire not just for beauty but also for financial protection.