US-Iran dispute: Spot gold rallies past ₹40,000

Rutam Vora Ahmedabad | Updated on January 03, 2020 Published on January 03, 2020

Investors rush for the haven asset amid uncertainty in other financial assets

As the crisis around West Asia started mounting, gold prices in India touched all-time high levels in spot markets hitting ₹40,092 per 10 grams (PM rates for 999 purity without tax) — a jump of 2.2 per cent or ₹877 within a day.

Spot silver prices also followed the trend surging from ₹46,340 per kg on Thursday to ₹47,330 – up by ₹990 or about 2 per cent in a day.

Triggered by the haven demand, investors flocked to the yellow metal amid looming uncertainty on what transpires from the Iranian retaliation to the US’ Thursday’s action against its military leader.

“We are seeing all-time high levels today. The rally is primarily because of the tensions following the US-Iran military actions. The near-term outlook appears bullish because of the geopolitical crisis in the Middle-East region,” Prithviraj Kothari, President, India Bullion and Jewellers Association Ltd (IBJA), told BusinessLine.

In futures, MCX Gold for February contract gained 1.87 per cent with last quoted price of ₹40,010 per 10 grams. CME Gold futures, meanwhile, hit a recent high of $1,548 an oz during intra-day, while it last quoted at $1,541.

Banks’ buying

According to Kothari, besides the central banks, which have been constantly accumulating gold at every dip in prices, it is also the investors, who are rushing for the haven asset amid uncertainty in the other financial assets.

Per the recent World Gold Council data, central banks have been piling up their gold reserves. Gold purchases during 2019 jumped 43 per cent to 629.4 tonnes (up to November 2019) as against 437.5 tonnes last year. Central banks in Turkey, Russia, Poland and China were the top ones to make heavy gold purchases during 2019.

Profit booking

But Kothari also pointed out that at the fresh peak levels, physical gold demand will take a pause and there will be profit-booking by those holding gold of a lesser value. “We may see some bit of profit booking in physical market because of the latest surge in the prices. So we may see some pause in India’s gold price rally going forward,” added Kothari.

Abhishek Bansal, Chairman, ABans Group of Companies, commented, “Gold prices are at four-month high in CME as tensions have increased in the Middle East. Gold also found support after China announced a reserve rate cut by 50 bps from January 6 to support the economy. An easing monetary policy will increase liquidity in the Chinese market and demand for gold will pick up. Domestic gold prices are likely to rally further following weakness in the Indian rupee after Crude oil prices have surged nearly 4 per cent.”

Published on January 03, 2020
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