Home >News >India >Gold prices hit new record high as US-China tension escalate

Gold prices continued to rally as investors flocked to buying the safe haven amid rising tensions between world’s two biggest economies US and China while there is a growing nervousness of second wave of coronavirus infections. On Monday, gold prices hit a record of $1945.26 per ounce in international markets. In India too, spot gold prices hit a new high of 52260 per 10 grams. Massive stimulus measures introduced by central banks around the globe have been pushing gold prices higher in last few months.

“Gold prices continued its bullish rally and made history finally taking out $1920 driven by escalating tension between US and China and a weaker dollar, while expectations of more stimulus to revive pandemic-hit economics lifted the metals’s appeal as an inflation hedge," said analysts at Motilal Oswal Financial Services Ltd.

Tension between US and China have intensified with the latest being forced closure of embassies in Houston and Chengdu. The latest leg of gold’s rally started after EU leaders agreed on the 750 billion euros recovery package which highlighted that central banks and governments may continue with measures to support the economic recovery. Focus now is on US where policymakers are discussing fresh stimulus plan.

“Gold has rallied sharply in last few days on back of weaker US dollar, increased geopolitical tensions, rising virus cases strong investor inflows and continuing stimulus measures. The US dollar index has slipped to September 2018 lows weighed down by concerns about health of the economy amid rising virus cases. The diverging economic and virus situation in US and Europe has also led to a rush towards euro," said Madhavi Mehta, analyst, commodity research, Kotak Securities.

According to Mehta, focus will continue to be on US and European economic data and development relating to virus outbreak, US-China tensions and stimulus talks which may affect US dollar as well as general risk sentiment and thereby trend in bullion prices.

In this year so far, gold prices have rallied 27.52% in global markets and 33.74% in domestic markets while the precious metal has soared over 8% in both the markets so far in July.

In the financial stability report released by Reserve Bank of India on Friday, the central bank said that global uncertainties and safe-haven flows drove gold prices higher in 2020, with some correction in March. “Commodity prices are expected to trade softer in 2020 than in 2019. The outlook will depend on the effective containment of the pandemic and relaxation of social distancing measures," it said.

According to analysts gold prices are bound to rise further due to escalating fears over the global economic downturn caused by covid-19 pandemic However, stellar increase in gold prices have hit demand for the yellow metal.

Physical gold demand fell to 677 tonnes in April-June period - its lowest levels since Q1 2009 as record high gold prices, in light of covid-19, led to a drop in consumption, as per Refinitiv. It said that higher gold prices, reaching record levels in many local currencies, put pressure on demand. Likewise, demand for gold used in industrial applications recorded a year-on-year decline of 16%, with losses across all the major segments.

“Looking ahead, the overall macroeconomic backdrop remains very supportive for gold. We believe that gold will continue its uptrend, driven by growing concerns over the global economic recession, fears of a second wave of COVID-19, heightened geopolitical tensions, historically low and negative interest rates as well as rising inflationary expectation amidst unprecedented levels of stimulus measures launched by central banks around the globe," said Cameron Alexander, Manager of Precious Metals Research at Refinitiv.

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