Gold prices in India fell 7.5 % since January end this year. On the National Commodity and Derivatives Exchange (NCDEX) the prices of gold amounted to Rs 25,545 per 10 grams on August 12 which was Rs 27,640 per 10 grams on January 30 this year. India Ratings and Research announced that the prices of gold may decline to Rs 20,500 per 10 grams which would be the least price in past 5 years. The reports of World Gold Council (WGC) implies the fact that due to decline in prices of gold in Indian Markets the India’s gold demand will increase tremendously in the second half of 2015.
Renisha Chainani, senior manager, commodities, Edelweiss Financial Services identified 5 reasons for the decline in gold prices from January. The reasons includes-
- Gold losing safe-haven appeal:
Due to global economic uncertainty the “Gold’s safe haven thesis” is not applicable. Under normal circumstances the price of gold will be based on the uncertainties in market.
- Dollar strengthening and Euro weakening:
The value of dollar is rising due to the revival of American economy which in turn increases the interest rates. This affects the investments in gold negatively. High interest rates increase the opportunity cost of holding zero-yield assets and the money invested in bullion gives on less returns when compared with earnings from investments such as treasury bills or other debts.
- Expectation of US Fed Tightening starting from September 2015:
Federal Open Market Committee (FOMC) the branch of the Federal Reserve Board that determines the direction of monetary policy in its last meeting announced that their rates will rise this year in a faster pace which affects the gold prices.
- Chinese reserve on gold is falling down:
The central People’s Bank of China (PBoC) announced last week there holdings in bullion rose to 1,658 tones as in June, from 1,054 tones in April 2009. Despite this increase, gold accounted only 1.65 per cent of China’s total foreign exchange reserves which was 1.8 per cent in 2009. This number was much less than the perception of China
- ETF Selling gathers:
Exchange Traded Fund (ETF) holdings are decreasing since 2012 and gold ETFs around worldwide accounts about 1,730 tons of gold.
