Gold Price In India Surpasses Rs 46,000 Mark; What Is Driving The Surge?

Gold price in India surged beyond the Rs 46,000/ 10 gram for the first time ever. On MCX, gold futures touched Rs 46,179 per 10 grams on Monday after a 2 percent or nearly Rs 1,000 increase from the previous close.

The metal has been mirroring the gains seen in the international market where spot gold was seen trading at $1,681.49 per ounce and US gold futures at $1,728.40 an ounce on bleak US weekly jobless claims numbers that helped lift sentiments on a deep economic impact from the coronavirus pandemic.

The precious metal's prices have been highly volatile after the outbreak of the coronavirus. Especially after the spread of pandemic across Europe and North America, the unpredictability of the effects of the worst health crisis in a century caused panic among investors.

Gold prices in India are highly affected by the international rates along with the rupee's movement. While global rates have experienced brief volatility, they have climbed to a seven-year high in the last week and the Indian currency fell to 76.43 against the US dollar on Monday.

The rupee's weakness piles on the high rates as most of India's demand for the metal is met by imports which are valued in dollars.

Coronavirus has changed the traditional stance on gold

Ideally, the precious metal has been considered a safe haven among investors amid any political or economic uncertainty. However, the COVID-19 pandemic has torn gold between its potential as a safe haven investment and as a source of liquidity amid a significant correction in equity markets.

Investors are partially selling the metal for profit booking at peaks, to make up for the losses in stocks.

At a time when the pandemic is still far from under control, cash has become king as people worry about their future earnings amid extended government imposed lockdowns and social distancing norms that halted regular business activity. Small businesses and those working for them have been especially impacted.

The epicentre of the pandemic has moved from China to Europe and now to the US, where the number of deaths is the highest ever recorded anywhere in the world at close to 22,000. It is hard to predict when the world's largest economy will re-open for business and how much economic damage will it cause to the world.

Gold price may hit a new all-time high globally

The volatility is expected to be seen throughout the year as social distancing could become the new normal until a cure or vaccination for the disease is found.

On 9 April, the last trading day in the previous week, spot gold settled at $1,752.80 an ounce, almost $170 an ounce away from the all-time intraday high of $1,923.70 seen on 6 September 2011.

Experts say that the metal may hit a new all-time high this year, if it manages to stay above the $1,700 level for a while as it appears difficult for the global economy to recover within 2020. However, it is expected to drop back to $1,500 once equity markets recover, reducing appeal for the metal.