After simmering for about a month, gold prices rocketed on Friday to touch a record high: Standard gold rose 1% to touch Rs 33,895 per 10 grams in Mumbai's Zaveri Bazaar market. In the international market, prices soared to $1405 per ounce but slipped to $1397 per ounce on Friday.
Gold futures for August advanced 0.4% or Rs 141 and closed at Rs 34,167 per 10 grams on the Multi Commodity Exchange of India (MCX) on Friday. Gold prices have surged by nearly 8% on the MCX in the past month. "Renewed worries over US-China trade dispute and its likely impact dented risk sentiment, pushing investors towards safe-haven assets," said Deepak Jasani, head-retail research, HDFC Securities.
"When investors become risk-averse, a shift to gold takes place," said Jimeet Modi, founder & CEO of SAMCO Securities & StockNote. The sharp rally comes on the back of an increase in buying by central banks across Asia and Europe.
Central banks were the biggest buyers of gold in percentage terms in Q1 (January-March) of 2019, WGC (World Gold Council) data showed. Central banks in China, Russia, India, Kazakhstan, Poland and Hungary have begun accumulating gold, which has reflected on its prices, says the WGC's latest Q1 report.
The total central bank buying was about 145 tonnes in Q1, a 68% increase on a year-on-year basis. The RBI (Reserve Bank of India) increased its gold stash by about 42 tonnes last year and bought 8.4 tonnes this year, reaching a record high of 618 tonnes.
Drawn to the safety and liquidity of the yellow metal, Central banks are among the largest investors, with total holdings of more than 30,000 tonnes as on February 2019, as per the WGC.
China, the world's top gold producer and consumer, is facing the prospect of a slowing domestic economy as the Trump administration raised tariffs on Chinese imports.
Gold is also getting a boost from major central banks who are changing their stance from hawkish to neutral or dovish. Central banks of all major countries are on the back foot and concerned about global economic slowdown.
After the global financial crisis in 2008, many nations turned net buyers from net sellers. IN 2018, central banks added a whopping 651.5 tonnes of gold to their holdings. This spree wasn't just the biggest in 47 years, but also the second highest annual total on record (only surpassed in 1967, when central banks' gold reserves increased by 1,404 tonnes).
According to analysts, the trend may not end soon, but the pace could slow down as prices have started to rally recently. "Till the time trade war issues between the US and China and geopolitical tensions between the US and Iran remain elevated, gold would not witness immediate selling pressure," they said.
"Gold prices are likely to rally over the coming quarters," Motilal Oswal Investment Services said. "We continue to maintain a positive bias targeting $1435-1440 (per ounce) on the COMEX (the primary futures and options market for trading metals such as gold), while domestic gold prices could rally towards Rs 34,050 (per 10 grams)."
Drawn To Glitter
There has been an increase in buying by central banks across asia and europe
- Rs 33,895 / 10 gmsPrice in Mum mkt on Friday
- $1397 / ounce Prices in int’l mkt on Friday
- 145 tonnes Total central bank buying globally
Global spending spree
- Central banks were biggest buyers in percentage terms in Q1/2019
- Russia and China accounted for about 60% of the total central banks’s buying
- Russia snapped up 55.3 tonnes, raising overall holdings to 2,168 tonnes
- China purchased 33 tonnes, raising total holdings to 1,885 tonnes
- For the first time in 32 years, Hungary’s central bank bought gold
- RBI bought 8.4 tonnes, increasing reserves by a record high of about 618 tonnes
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