After a stellar run in 2019, gold prices have moved sharply higher this year. Year to date, gold prices in India are up about 20%, following a 25% surge last year. Worries about deeper global recession amid coronavirus crisis, unprecedented global stimulus, US-China tensions and rupee's depreciation against US dollar have led to a rally in domestic prices. On Friday, gold futures on MCX settled marginally lower at ₹47,355 per 10 gram while silver tumbled ₹900 to ₹47,741 per kg. Last month, gold had hit a record high of about ₹48,000 per 10 gram in India.
High prices, lockdown restrictions and coronavirus crisis has severely dented gold demand in India, leading dealers to offer discounts over official domestic prices. Gold prices in India include 12.5% import tax and 3% GST. Indian dealers offered discounts of up to $20 an ounce over official domestic prices, Reuters reported.
Weak consumer demand may limit significant upside while safe-haven demand may support gold on the downside, say analysts. "Weighing on gold price are concerns about consumer demand amid bleak economic outlook. Gold may continue to benefit from safe haven buying as risk sentiment has been dampened by growth and virus concerns," Kotak Securities said in a recent note.
"Gains in US dollar and resistance near $1750/ounce may keep a check on upside. Hence one needs to wait for corrective dip to create fresh long positions," the brokerage added. A strengthening US dollar makes gold more expensive for holders of other currencies, thus hurting demand.
Globally, spot gold prices rose over 2% this week to about $1,730.19 per ounce.
Despite muted physical demand, investment demand for gold in India remained strong. Gold exchange traded funds saw net inflows of ₹815 crore in May as investors preferred safe haven options amid stock market volatility and the coronavirus crisis, higher than the net ₹731 crore infused in April. Since August 2019, gold ETF segment has received net inflows of ₹3,299 crore.
Globally, reflecting investor appetite, holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, rose 0.5% to 1,135.05 tonnes on Thursday, its highest in over seven years.
Sovereign gold bonds have also caught investors’ fancy in India. The May issue of gold bonds helped the government mobilise ₹1,168 crore, the highest-ever amount from a single tranche of gold bonds. Analysts say that with markets remaining volatile, many investors prefer to park their money in gold.