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Gold extends rally as global rout boosts safe haven appeal

By Religare
|

The yellow metal extended an advance in the domestic market on Monday, registering healthy gains as investors scurried to the safety of Gold amidst mayhem across global stock markets which were rocked by fears over a worsening China slowdown.

Rising uncertainty over the health of the global economy that has been exacerbated by China's shock Yuan devaluation move which has wiped out over USD 5 trillion of investor wealth in the last two weeks has boosted the appeal of the bullion as a safe haven asset.

 

On Monday, Wall Street plunged more than 3 per cent to post its worst drop in four years with the Dow Jones Industrial Average tumbling 1,000 points in opening trade before paring losses , after markets in China crashed 8.5 per cent, their biggest one-day percentage drop since 2007.

The dollar's steep plunge added more bite to the Gold rally as a weaker dollar boosted the demand for Gold as an alternative asset. Weaker greenback makes Gold cheaper for those holding other currencies, thus bolstering demand.

Bets of an initial rate hike by the Fed being pushed back for some time have also boosted the lure for Gold as a store of value, igniting buying momentum in the precious metal.

Atlanta Fed President Dennis Lockhart stressed that the outlook for a maiden rate hike in nine years was complicated by the China turmoil; dollar strength and oil collapse even as he expected a lift-off this year.

Gold may extend a rally today as China's stocks extended the steepest rout in eight years on concerns over reduced support from the government to prop up equities.

At the MCX, Gold futures for October 2015 contract closed at Rs 27,448 per 10 gram, up by 0.77 per cent after opening at Rs 27,300, against the previous closing price of Rs 27,239. It touched the intra-day high of Rs 27,833.

Story first published: Tuesday, August 25, 2015, 12:20 [IST]
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