A Look at The Factors Causing Sharp Fall in Gold Prices in India

Gold Prices in India

A sharp decline in gold costs in the previous week overwhelmed investors. According to analysts, this was normal, as economies all around the world are recuperating from lockdown. With the slight improvement in the economy, it appears that the demand for gold is relatively low compared to supplies and hence the fall in gold prices is justified to lure investors.

Gold Prices in India

Why Gold Demand is Less Than Supply?

Financial experts don’t expect further fall in the gold prices. This is because of reasons like the weak dollar and persistent trade tensions between India and China. Experts think that gold prices are inversely proportional to equities. Though many in Mumbai believe that the economy will recover at a rapid pace in the post COVID scenario but they are being proved wrong time and again as the Covid-19 crisis is here to stay and not going anywhere. Experts believe that gold prices are being regulated by many factors, mostly a sharp decline in the US unemployment rate in may as well as solid PMI ratings in many Asian countries. Demand for gold is low when compared to supplies and this has resulted in a fall in gold prices. Many are in the process of selling their existing stock of gold to fund the loss incurred due to the Covid-19 crisis.

Gold Prices Post Covid-19 Crisis

In India, by now the lockdown restrictions have lifted to a significant extent. Restaurants, shopping malls, hotels are opening in many parts of the country from 8th June 2020. This has resulted in easing concerns over the impact of the Corona Virus on the Indian economy. All this has contributed to lowering the demand for the yellow metal. As more and more entities are in the process of selling gold to make up for the loss caused by the Corona Virus, the buyers are expecting some profit booking on gold. Many assume that the yellow metal is to cost somewhere between Rs 45, 500-Rs 45, 800 per ounce on MCX, and $ 1690 in the global market. For more on this visit Commodities and Currencies Research segment at Angel Broking.  

Gold prices are falling sharply in the wake of the enhanced unemployment rate in the US. The world’s largest economy, the US economy fell sharply to 13.3% in May from 14.7% in April. However, major economies started to reopen as the restrictions were eased in recent times.

Countries like the US had eased the lockdown to a significant extent because they know that their economies are badly hit because of the COVID-19 virus and they cannot take chances with their respective economies. As a consequence, that country has suffered the most in terms of casualties because of the Corona Virus as of the day. The US believes that its payrolls are strong and they beat expectations, underestimating the Covid-19 crisis. It is undoubtedly good for them.   

Demand for Gold Maybe High in the Years to Come

All across the world, governments including the US has to announce financial packages on every alternate day to revive the respective economies. The Japanese brokerage believes that the policy support from governments continues to be the driving factor as far as the post-COVID-19 economic scenario is concerned. 

The World Gold Council declared that the gold-backed ETFs or (exchange-traded funds) added around 623 tonnes of the yellow metal worth $34 billion to their existing stockpile between January and May, thereby exceeding every full-year enhancement on record during five months.

In the weeks to come, the price of gold may rise to about Rs 47100 in the country. Investors are watching these developments closely. They are also focusing on the US Fed’s two-day policy meeting that is to happen this week. More stimulus as well as lower rates of interest are to benefit the gold.