The drop in gold prices came on the back of a strong dollar, which was due to the rising bond yields in the world’s largest economy. With investors pouring money into US government bonds to earn higher yields, the attractiveness of the yellow metal as a safe haven diminished a bit, and hence the slide in its price, analysts said.
Apart from demand factor, the price of gold in India depends on the international pricing and the rupee dollar exchange rate since it is a globally traded commodity. Of late, dollar has been strengthening against most major currencies. The rupee-dollar rate has been hovering around the 73-to-adollar mark for the last few months. In the last couple of weeks, the rupee has broken below the 73-mark and on Friday closed at 73.03.
While some analysts see gold sliding to the $1,500 level, others feel there is going to be a tug-of-war between global central banks, which will try to rein in rising yields, and investors who would expect it to rise. This would eventually decide the price of gold, analysts said.
According to Hitesh Jain of Yes Securities, although gold prices have tumbled recently in the wake of the surge in sovereign yields, the latter would not rise sustainably since governments do not favour higher yields on their accumulated gigantic debt.
“There is a prevalent divide between markets and central banks, wherein markets are pricing higher inflation and growth, while central banks remain accommodative and dovish. We assume that central banks will eventually rein in yields with their asset purchases and also help their respective governments in keeping the borrowing costs low,” Jain wrote in a note. “On gold price trajectory, we still remain bullish considering the unprecedented government stimulus, bloated central bank balance sheets and burgeoning sovereign debt.”
This content was originally published here.
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