The rise in the number of new coronavirus cases outside China over the past few days have reinforced the safe-haven appeal of gold. The international spot gold prices have surged to a seven-year high while India's domestic gold prices rose to an all-time high.
Gold prices fell piercingly today in Indian markets, elongating losses to the second day. On MCX, April gold expectations fell 0.7% or about ₹300 to ₹42,480 per 10 gram. The precious metal had dropped ₹765 per 10 gram in the last session. Analysts credited the slump in domestic prices in gold to profit-taking after the recent run-up in prices and a stronger rupee.
Tracking gold, silver prices also fell drastically today. On MCX, silver futures fell 1.2% to ₹47,020 per kg. The rupee today grew to 71.77 a dollar as opposed to the previous close of 71.88. Domestic gold prices constitute 12.5% import duty and 3% GST.
Reasons for the sharp increase in gold prices
Hareesh V, head of commodity at Geojit Financial Services, said that the rapid spread of coronavirus outside China and its potential negative global economic influence back gold's haven demand. "Meanwhile, policy easing measures from various central banks to shore up the economy and even physical market movements are to limit the significant upside," Livemint reported.
"While prices stay over $1,620 expect rallies to continue with stiff opposition is seen at $1,662 followed by $1,695 levels. A close below $1,595 is needed to cancel the bullish outlook," Hareesh said.
The rapid spread of the virus outside China has raised bets for monetary policy easing by global central banks. The US money market expectations are now fully pricing in a 0.25 percentage point rate cut by Federal Reserve by June. Lower interest rates increase the appeal of non-interest yielding assets like gold.
Priyanka Shrimankar, a research analyst at Bonanza Portfolio, states that expectations of rate cuts by global central banks and a record low US yields have further added to purchasing in bullion.
The rapid spread of the virus outside China has raised bets for monetary policy easing by global central banks. The US money market expectations are now fully pricing in a 0.25 percentage point rate cut by Federal Reserve by June.
Showing the risk-off mood, holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund or gold ETF, grew 0.7% to 940.09 tonnes on Tuesday.
Cut Interest Rates to keep economy firm
Some analysts have bet that the US Federal Reserve will cut interest rates. This is an effort to cushion a feared hit to economic growth from the epidemic. Lower interest rates increase the appeal of asset classes like gold that don't generate any interest.
Investors are also pricing in an increased chance the European Central Bank will cut interest rates sooner rather than later. This is amid fears that the coronavirus may hit the eurozone economy hard. However, current high prices are likely to hit the physical demand of gold in India, analysts say.
Meantime, South Korea, Italy and Iran have logged exceptionally sharp increases in infections and deaths while several nations in the Middle East announced their first occurrences of coronavirus.
In China, 508 new cases were recorded. This number although up from 409 on Monday, it is much lower than new infections reports just a week ago. China's death toll touched 2,663 on Tuesday after 71 more people perished.
Image: Economic Times
Saumya Rastogi is an intern with SheThePeople.TV