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Despite its reputation as a safe haven investment in uncertain times, gold performed poorly in Samvat 2077, the Hindu calendar year ending on Wednesday. Mint explains the anomaly which comes after a robust rally in previous years

How did gold perform during Samvat 2077?

In Samvat 2077, international gold prices were down nearly 6%, compared to gains of 26% and 23% in the previous two years. Gold prices in the Indian markets also slumped 6%, the biggest decline in seven years as per the Samvat calendar. In India, gold prices touched a record 55,922 per 10 grams in August last year, but have slipped to around 47,729 now. In the past few months, gold prices have been choppy amid volatility in the US dollar and bond yields. According to the World Gold Council, global demand for gold fell in July-September to its lowest since the last quarter of 2020 as financial investors sold the metal.

Why did gold prices see a decline?

A stronger dollar, rising global stocks, rising vaccination rates and falling covid-19 cases, possible winding-up of easy monetary policy in the US and possible divergence in central bank policies dragged down gold in India and across the world. Exchange-traded funds (ETFs) have not helped either, although global central banks’ gold buying spree and Commodity Futures Trading Commission (CFTC) maintaining its position in net longs have increased the overall sentiment for gold prices, analysts said. However, widespread optimism among investors about a quick recovery in global economy helped.

What about the demand for jewellery?

Lower prices and rising mobility have boosted jewellery buying in India. The World Gold Council says India’s overall gold demand in July-September was at 139.1 tonnes, a 47% jump over 2020. While gold jewellery demand in India rose by 58% to 96.2 tonnes, investment demand for bars and coins also grew by 18%, in a quarter that tends to be subdued.

Is gold still considered a safe haven?

Even as rival asset classes such as equities outperformed in Samvat 2077, investors still consider gold a safe haven. Indian markets posted their best gains in 13 years, with benchmark indices Sensex and Nifty gaining around 40% to touch new highs during the year, which was marked by a pandemic outbreak that set back the economy. However, inflation usually drives gold demand, as it is seen as a hedge against inflation. Gold prices will react to any change in interest rate by global central banks.

How will gold fare in Samvat 2078?

Analysts are bullish on gold prices over the next 12 months, and expect consolidation and some directional move soon. Motilal Oswal Financial Services said gold has the potential to surge towards $2,000 per ounce once again and might even make it to a new life-time high. On the domestic front, it expects gold prices to touch highs of 52,000-53,000/10 gm over the next 12 months. Angel One sees gold prices moving higher towards 54,000/10 gm till next Diwali. It expects gold prices to find support at 42,300 levels.

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