Gold has lost its glitter following demonetisation of high value currency. It had shown a spurt immediately after the currency withdrawal, but the traction was momentary. In the milieu following the November 8 announcement, people were seen headed for jewellery shops and were seen shopping late into night.
News reports said the price of yellow metal shot to Rs40,000 per 10 grams at places. Without being sure on how to use their black money, many were seen parking their funds in gold. However, it did not last even for a day.
The day later, jewellers went underground and many downed their shutters fearing action from the tax authorities. From then there is a steady fall in the price of gold. In the last three months or so, the yellow metal has lost around 10 per cent of its value. Gold price was Rs30,025 per 10 gram November 8, the day the move was announced.
It has now fallen to nearly Rs28,000 in the retail market over less than one month. Gold ETFs and funds are down 4 per cent post-demonetisation. Global factors, which often determine the fortunes of domestic gold price, also do not look great for gold.
Gold has been whipsawed this year following unexpected political votes in major economies. It jumped after Britain’s vote to quit the European Union in June, then tumbled as Donald Trump’s presidential election last month boosted bets for higher US interest rates.
Prices also fell Monday as European equities and base metals advanced. Earlier this week, gold took a beating following Italy’s vote against constitutional reform that prompted the country’s prime minister to resign. While the referendum has raised concerns over Italy’s future in the euro region, the nation’s political and legal system means a “no” vote is unlikely to trigger a quick exit.
A falling demand from jewellers and retailers in the domestic bullion market due to paucity of funds weighed on sentiments. Gold extended its slump and shed Rs500 Monday to come down to nearly Rs28,000 per 10 grams in the bullion markets. Sentiments also played an important role in pulling down the demand.
A fear that US Fed will increase its rate eroded the metal’s appeal as a safe investment haven. In India, the peak marriage season is between November and March. Usually, gold rate rules high during these four months.
However, this has so far had no impact on the metal. Reports last week suggested that the Centre may come out with similar measures against gold hoarding as it did with black money last month.
The government said it would set individual ceilings for women and men for owning gold. This also dampened the demand for gold.
Gold has been India’s favourite obsession for centuries, often marketed as a hedge against money (or formal monetary system), a store of value, and as an asset to diversify risk. Indian women attach extreme importance to gold which is also seen as one of the best liquid assets as it can be sold or mortgaged during an emergency.
As a result of this not just the middle class and the rich but even the poor try hard to possess gold. However, the sudden announcement of demonetisation and the subsequent frenzy whipped up by the government have come as a bolt from the blue for many.
According to a report of the World Gold Council (WGC), the demand for gold is expected to hit a seven-year low to remain in the range of 650-750 tonnes in 2016.
It forecast a correction in the medium term in international gold prices heading lower towards $1,100 mark per ounce while in India, prices will go lower towards Rs28,000 and even less for 10 grams. The WGC report seems to be coming true.