Home / Markets / Commodities /  Gold prices surge over 50,000 per 10 gram for first time ever

Indian spot gold prices have surged over 50,000 per 10 gram for first time ever on Wednesday. Prices of spot gold in MCX (Multi Commodity Exchange of India Ltd) hit an all time high of 50015 per 10 gram before closing at 50005 per 10 gm. In international markets, gold prices hit a nine-year high of $1849.62 per ounce (at 6:55 pm) on Wednesday amid uncertainties due to spread of covid-19 and the ultra-low interest rate environment around the world.

During volatile times, investors rush to the precious metal, often considered as a safe haven, as gold helps investors diversify risks and improve risk-adjusted returns.

In response to the pandemic, central banks around the world have aggressively cut rates and expanded asset purchasing programmes to stabilise and stimulate their economies. On Wednesday, the 27 European Union governments have decided to raise an unprecedented 750 billion euros ($857 billion) to combat economic disruptions due to covid-19.

On Wednesday, silver prices closed at 59295 per kg for the first time since December 2012.

“Gold has rallied to record high levels reflecting firmness in the international market. International gold prices have been on a rise for the last few months but have picked up pace amid sharp losses in the US dollar, additional stimulus measures and robust investor inflows. Rising virus cases and US-China tensions have also underpinned gold price," said Ravindra Rao, VP- Head Commodity Research at Kotak Securities.

Rao added that international silver prices gained due to concurrent gains in gold and industrial metals and strong investor buying.

Typically, gold is used as a hedge to help mitigate risks associated with equity volatility. In 2020 so far, gold prices in Indian markets have risen 27.97%, international gold prices have surged 22.16% while Sensex is down 8.2%. Last year, Indian gold prices rose 23.79%, international gold prices were up 18.31% while Sensex gained 14.38%.

According to Kishore Narne, Associate Director and Head, Commodities & Currencies, Motilal Oswal Financial Services gold prices will continue to rise due to factors such as lower interest rates, negative rates in few economies, enormous amount of liquidity and expanded fiscal balance sheets of governments which are trying to push growth amidst covid-19. Narne expects gold prices in Indian markets to hit 65,000 per 10 gram over medium to long term.

“We do expect the anaemic economic growth would cause further isolation of economies and intensify protectionist policies and further aggravate trade-war which also helped gold in the past. We expect gold to keep up the momentum with occasional corrections," he said.

However, gold exchange traded fund (ETF) inflows in India have fallen around 50% in June to 494 crore mostly due to rise in the prices of gold.

Demand for gold is expected to see setback in this year due to weak economic condition and high prices of the metal. According to World Gold Council, an economic contraction will likely result in lower demand for gold in the form of jewellery, technology or long-term savings, particularly evident in key gold markets such as China or India. “Historically, investment demand during periods of financial stress has offset weakness in consumer demand and we believe that 2020 will be no exception. However, gold’s performance may depend on the speed and shape of the recovery," it said.

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