Gold is finally glittering all over again; will the rally last?

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Gold is finally glittering all over again; will the rally last?
On Friday, gold prices in India recorded the biggest single day gain of 2014. In Delhi spot gold of 99.9 purity surged by Rs 620 to hit one-month high of Rs 28,635 per ten gram. Sovereign followed suit and shot up by Rs 300 to Rs 24,900 per piece of 8 gram. It was a 2.5 per cent gain on Friday and prices of the precious metal were buoyant throughout the week.

The rally in India was on the back of the steepest rally seen in the gold markets globally in the last nine months.

India imports all of its gold requirements, which means if gold prices rally globally they rise in India too. Two things led to the spectacular rally in the gold markets globally and hence India. First, the US Federal Reserve hinted that interest rates in the US would remain low for sometime.

The second was the tensions surrounding Iraq which led to a spike in gold prices. Remember, gold is considered a safe haven asset and every time there is internal strife somewhere or geo-poilitical tension, gold rallies, while equities fall.

Where is gold headed in India?

In India gold prices would largely depend on international prices, which are clearly expected to remain high on account of tensions in Iraq. The other variable that is important is the rupee. Each time the rupee falls, gold becomes expensive in the domestic market. It's expected that the rupee may continue to remain weak as crude prices remain elevated, keeping gold prices higher. Check gold rates in your city here

At least for the next few weeks one can expect the problems in Iraq to continue. While there maybe a modest correction in gold prices as they have run up sharply, a sharp fall is unlikely to happen anytime soon.

Of course, there are talks that the Union Budget may cut the import duty on gold to 5 per cent. If that happens expect gold prices in India to fall.

Read more about: gold
Story first published: Saturday, June 21, 2014, 10:17 [IST]
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