Gold Price Slumped RA 200 As Economic Indices Strengthen

For a considerable part of 2020, gold price kept soaring. In the domestic market, the gold price even crossed Rs 50,000 marks for 10 grams of gold for the first time.  However, for the last few trading sessions, both gold and silver futures prices dipped significantly following global cue as dollar strengthens and economies showing signs of improvement. 

During 2020 gold price rose significantly as a hedge against increasing economic uncertainties. However, as growth parameters are strengthening, gold demand is gradually losing the steam. Last Friday, gold price for 10 grams declined Rs 2000 in MCX whereas gold futures were down by 0.39 percent, losing Rs 193 to Rs 48,774 for 10-gram gold. 

Like gold, silver futures also registered a price decline. Silver futures dipped 0.37 percent to Rs 63,994 per kg. 

In the global market, the gold price touched six weeks low. COMEX gold, the world’s leading benchmark in gold futures, made a volatile start at the beginning of the week and moved a wide range to dip 0.4 percent as dollar catching strength. 

Falling gold price may also cause the other gold-backed investment to lose shine. There is a slight decline after registering massive inflow in gold-backed ETF in 2020. 

Experts suggested that gold price will register a sidewise to down movement in the market for near futures. At MCX February gold futures support and resistance are placed respectively at Rs 48,200 and Rs 49,200. MCX gold may continue to trade a bearish, said SMC Global on a note. The report also suggested that gold bullion can face resistance at 49,100 and test the support level at Rs 48,500. February gold futures price further fell 0.42 percent to trade at Rs 48,760 in MCX. 

Factors Responsible For The Fall In The Gold Price 

Gold is considered a hedge against economic volatility. Hence, the gold price soars when growth rate contracts in the economy. Following the rising cases of COVID-19, gold price posted 25 percent growth last yeat. However, from the start of 2021, the gold market had swung widely, registering a downward movement. The Indian market, which reflects a global trend,  gold futures in MCX recorded a lower price for February.  A few global factors have prompted the fall.

• A surge in US treasury yields and a prospect of a big stimulus package from the Joe Biden government has dampened the attraction of non-interest yielding asset like gold 
• The Biden government has promised trillions of dollars of fiscal stimulus to help the economic revival. Stocks in the US market rallied with the news of the stimulus package. It affected the gold price 
• As USD growing strong, most economic indices are showing signs of a speedy recovery, impacting the gold market

The Bottom Line 

With the subscription for the first tranche of sovereign gold bond opening, it would be interesting to see how the market responds amid declining gold price. Meanwhile, gold-backed ETFs in the domestic market continued attracting investors and received Rs 430 crores in December, taking the total asset under management to Rs 14,173 crores. Compared to total Rs 16 crores in 2019, investors infused Rs 6,657 crores in gold ETFs in 2020.