Indian Gold Price Falls 6-Months Low: Is Gold Losing Importance As Safe Haven?

Indian gold prices dropped to 6-months low on weak global cues. Internationally, gold rates are also being traded at around 1,680/oz. This week, the US Federal Reserve is going to organize its next FOMC meeting, where the US central bank will decide its upcoming financial policy measures. Traders are anticipating that the Fed will raise the interest rate by 75 bps in this FOMC meeting for controlling the mounting inflation rate. This might further pull down the gold rates.

In August CPI inflation rate stood at 8.3%, which has fallen marginally from the last month. In July CPI Inflation was recorded to be at 8.5%. However, the US Fed is trying to keep the inflation rate within 2%. So, August's inflation was much higher than the Fed's target. Because of this, traders are anticipating that the US central bank will behave more hawkish against it. Aggressive rate hikes in the last few months by the Fed are triggering the markets. Gold, a hedge against inflation has been always considered a safe haven. During the Covid pandemic, and this year's Russia-Ukraine war, gold rates jumped significantly.

However, now the Covid pandemic went under control, after rapid vaccination, and gold prices are also falling with the Fed's hawkish policy measures. Hiking the interest rate is one of the tools by which the Fed is trying to control liquidity in the economy. The central bank is expecting that it will help them to restrict the climbing inflation rate. So, keeping with that pace, markets are reacting negatively. Investors are now worrying that the falling rate will force gold to lose its importance as a safe haven.

Additionally, the US Dollar index is at around 110, while the 2-year US Treasury yield recently increased to around 3.9%. A higher bond yield and increasing US dollar are unsupportive for commodity prices. So, gold rates are also going downward now. Indian gold rates are standing on the same path now. Till last traded, the 22 carat gold rates quoted at Rs. 45,950, and the 24 carat gold rates quoted at Rs. 50,130/10 grams. A falling gold rare, however can be affirmative for the gold demands in India.