Even as the risk appetite in the West is on the rise and US manufacturing activity is gaining momentum, gold prices may take a cue from India’s policy on imports, according to experts at S&P Dow Jones Indices.

The experts at S&P DJI noted that gold as a safe haven investment instrument was slowly losing sheen on account of tapering programme by the US Federal Reserve and improvement in the investment environment. Investors used gold as a store of value in the instances of crisis or inflation to safeguard the real value of the investments.

“As the Fed tapers, the risk-off environment is subsiding with a potentially improving US economy and stronger dollar, so the demand for gold as a safe haven has declined putting pressure on the price,” Jodie Gunzberg, Director – Commodities, S&P Dow Jones Indices told Business Line in an emailed response.

According to Gunzberg, factors such as Indian imports or Chinese local premiums may hold the key to future gold price movement.

“Gold may get support if Indian imports improve from lesser restrictions or if the Chinese local premiums increased to about double their current $3 levels over the global benchmark,” maintained Gunzberg.

International spot gold fell to $1,260 an ounce on Wednesday in Singapore, which sets the market trend for Asia. Spot gold dropped to $1,260.74 an ounce, its weakest since February 7.

In India, standard gold hit 10-month low of ₹27,535 per 10 grams in Mumbai markets.

Global crisis

Traditionally, gold prices hold direct correlation with global crisis such as financial turmoil or geographical tensions. Recent spikes in gold prices were seen during the tensions between Ukraine and Russia.

Gold prices had touched $1,382 an ounce in mid-March from the lows of $1,245.90 an ounce reported on January 31. According to S&P DJI expert, anytime an outside force interferes with the supply and demand equilibrium, there is an impact on gold prices.

“India’s restriction on gold imports has had an adverse effect on the price of gold by fundamentally enlarging the supply pool in circulation – or in other words – restricting demand from the world’s second largest consumer,” said Gunzberg.