Gold price hits fresh all-time high of Rs 35,074 per ten grams in
futures trade on Wednesday on heavy buying as rupee plunged to its new
record low of 68.85 against the US dollar.
Despite recovering
about USD 240 an ounce, or more than 20 percent, since hitting a near
three-year low of USD 1,180.71 in late June, gold prices are still down
15 percent so far this year in international market. On the contrary,
the yellow metal, which plunged to a low of Rs 25,000 in mid-April, is
at a record high in India.
Here’s looking at why gold price in India is spiralling:
Rupee depreciation:
The depreciation in rupee has cast a huge impact on the escalation of
gold prices as it makes imports costlier. Rupee is down nearly 19
percent so far this year. Hence, gold price in India cannot be at
parallels with the price in international market. The difference arising
out of the depreciation in rupee has pushed the gold prices higher.
Gold import duty:Gold
import duty has also added fuel to the rapidly increasing gold price.
In order to contain the widening Current Account Deficit (CAD), the
government this month hiked the import duty on gold from existing 8
percent to 10 percent, which has led to a straight jump of more than 600
per 10 gram in gold prices. Prior to this hike, the government had
twice hiked import duty from 4 percent to 6 percent and 8 percent
respectively.
Geo-political tensions: Geopolitical
tensions in Syria are one of the reasons that have immediately triggered
the hike in gold prices. Analysts believe that the possibility of US
military action against Syria is driving demand for safe-haven assets
including gold. Speculations are also doing the rounds that Fed might
delay tapering of its bond buying programme if US forces attack Syria.
Low-level demand/ETF buying: In
the last two weeks, SPDR gold trust, the world's largest gold-backed
exchange-traded fund, has reported inflow, signalling renewed interest
of market players. Apart from ETF buying, low-level buying also stoked
up prices.
Central Bank’s buying: International Monetary
Fund (IMF) data has showed that central banks continued to add to their
gold reserves. Turkey added the most by buying 22.5 tonnes of gold in
July, while Russia's holdings topped 1,000 tonnes. The accumulation of
gold by the central banks has underpinned demand for gold, which in turn
has strengthened the metal’s price.
