Why are gold prices rising? 

#GS3 #Economy 

Much before Covid-19’s impact reverberated across economies and led to a crash in global stock markets, gold prices had started their upward glide since May 2019 to culminate into a nearly 40 per cent jump in less than a year, from $1250 (an ounce) to around $1700 (an ounce) plus now.  

  • The present gold prices in India are even higher, as they jumped from around Rs 32,000 per 10 grams to nearly Rs 46,800 per 10 gram during the same period, a nearly 45 per cent return. 
  • Since gold is mostly imported commodity into India, the depreciation of the rupee vis-a-vis the US dollar of around 7 per cent since last September pushed the gold prices in India even higher.  
  • The Rupee on Wednesday closed at a new record low of Rs 76.86 to a dollar, from Rs 76.44 Tuesday. 

Why are gold prices rising? 

  • Last year, there have been intermittent reports based on economic indicators suggesting that the US economy could enter into recession after a record 11 years of economic surge since the global financial crisis of 2008.  
  • This expectation of recession sowed the seeds of the gold rally, and the Covid-19 impact, which has virtually led to a shutdown of major economies across the world, added momentum to the rising gold prices as a major global recession now looks certain.  
  • The nearly 40 per cent crash in benchmark equity indices in the US and India, forced the US Fed to announce a record amount of liquidity injection and bond buying programme of more than $3 trillion, and the promise to do more.  
  • On March 27, the Reserve Bank of India too cut its key policy rate by 75 basis points and announced liquidity injection of Rs 3.74 lakh crore in the financial markets.  
  • Any expansion in the paper currency tends to push up gold prices. Apart from this, major gold buying leading central banks of China and Russia over the last two years supported higher gold prices.  
  • While stock prices have risen over 20 per cent from the March crash levels, supported by record easing by the central banks, gold has resumed its uptrend after falling initially from $1700 an ounce on March 9 to $1450 on March 20.  
  • This happened as an extreme reaction of investors to move towards cash. 
Print Friendly and PDF
blog comments powered by Disqus