Home >Markets >Mark To Market >Gold rallies as global, local factors align in its favour

Mumbai: Thanks to increased expectations of monetary policy loosening by global central banks and geo-political uncertainty, gold is luring investors.

The US Federal Reserve is likely to cut interest rates by 25 basis points (bps) as early as July-end. One basis point is one hundredth of a percentage point. This is said to be followed by another 50 bps rate cut in September. In addition to that, global tensions continue with the US-China trade dispute still unresolved. Also,the US and Iran remaining at loggerheads with each other has added to the global risk-off trade. In this scenario, with equity valuations remaining expensive, gold seems to be regaining its safe haven status.

Not just global cues, domestically as well odds seem to be in favour of the precious metal. In its recent Union Budget, the government raised customs duty on gold from 10% to 12.5%. According to domestic brokerage house Kotak Institutional Equities Ltd, increase in customs duty on gold may increase attractiveness of gold for investment. While this will result in additional 4,000-5,000 crore of revenues, it will increase the domestic price of gold by 2.5% and revalue the entire stock of gold with Indian households by the same amount, it said in a report on 22 July. Analysts at Kotak feel that it would have been better to increase Goods and Services Tax (GST) rate on jewellery, which could reduce the appeal of gold and precious stones as an investment class. Gold jewellery attracts 3% GST.

In-line with the global trend, gold prices in India too soared to over 36,000/10gms recently, touching its life-time high. Although, gold prices have currently given up some of these gains, investment demand for the yellow metal is likely to be higher. In its mid-year outlook, the World Gold Council (WGC) said that consumer demand may be soft and speculative activity could amplify price movements but, overall, it is likely that investment demand will remain robust and central banks will continue their net purchasing trend.

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