Gold’s out-performance over equity has been even better in the international market, thanks largely to a big sell-off in equities in advanced economies such as the US and Western Europe.<\/strong><\/p>\n Krishna Kant reports.<\/strong><\/p>\n Gold prices are struggling and are down 18 per cent from their March highs.<\/p>\n But stock prices have fallen even more.<\/p>\n As a result, the precious metal has begun to outperform equities \u2014 both in the domestic market and international markets.<\/p>\n \u00a0<\/p>\n Gold prices are up 2.6 per cent in the domestic market in the current calendar year (CY22) so far, according to the World Gold Council (WGC), compared to a 1.7 per cent decline in the Sensex year-to-date (YTD).<\/p>\n The yellow metal had upended equities in CY20 as well.<\/p>\n Gold was trading at Rs 1.37 lakh per ounce (oz) on Thursday, up from Rs 1.34 per oz at the end of December 2021, according to WGC.<\/p>\n By comparison, the equity benchmark BSE Sensex closed at 57,235.33 on Thursday, down from 58,253.8 at the end of last calendar year (CY21).<\/p>\n The highly malleable and ductile metal has performed even better in the domestic bullion market.<\/p>\n In the Mumbai bullion market, 24-carat gold was trading at Rs 52,250 per 10 gram (gm) on Tuesday, up 5.2 per cent from Rs 49,680 per 10 gm at the end of December 2021.<\/p>\n Gold price in the domestic market is driven by three elements: international spot prices, changes in the rupee-dollar exchange rate, and change (if any) in Customs duty on gold imports.<\/p>\n The rupee has depreciated nearly 10 per cent against the US dollar YTD.<\/p>\n The central government raised import duty on gold in June this year.<\/p>\n Both these factors have hoisted gold prices in the domestic market, even as they have declined in the international market.<\/p>\n Gold\u2019s outperformance over equity has been even better in the international market, thanks largely to a big sell-off in equities in advanced economies such as the US and Western Europe.<\/p>\n Gold price in dollars is down 6.9 per cent since the beginning of CY22, compared to a 19.6 per cent decline in the benchmark Dow Jones Industrial Average (Dow) during the period.<\/p>\n In the US, spot market gold was trading at $1,680.55 per oz on Thursday, down from 1,805.85 per oz at the end of December 2021.<\/p>\n In the same period, the Dow was down nearly 20 per cent \u2014 from 36,383.3 at the end of 2021 to close at 29,210.85 on Wednesday.<\/p>\n The recent sell-off in the US equity market has made gold an outperformer, even on a longer-term basis.<\/p>\n The Dow has now given up all its post-pandemic gains and is up only 2.4 per cent from its 2019 closing value of 28,538, while gold is up 11 per cent during the period.<\/p>\n Most analysts, however, remain pessimistic about gold prices, given rate hikes and rising bond yields in the US and a rally in the dollar index.<\/p>\n Internationally, gold competes with the dollar and US government bonds for safe-haven status during times of economic uncertainty, but a higher yield or US treasury bonds makes gold less attractive to investors.<\/p>\n Unlike bonds, gold doesn\u2019t provide any yield or interest rate to its holder.<\/p>\n The yield on the benchmark 10-year US treasury bond has more than doubled YTD to close at 3.9 per cent on Thursday, up from 1.51 per cent at the end of December 2021.<\/p>\n Gold price is also inversely related to the value of the US dollar or the dollar index.<\/p>\n The dollar index is up 18 per cent YTD in 2022, creating headwinds for many assets, including gold.<\/p>\n \u201cThe rate hike by the US Federal Reserve has led to the dollar strengthening against major currencies of the world.<\/p>\n “A firm dollar makes buying gold much more expensive, thereby reducing the investment appetite,\u201d write analysts at Emkay Wealth Management.<\/p>\n However, the gold price is getting support from record high inflation in advanced economies and growing economic uncertainty.<\/p>\n \u201cNotwithstanding geopolitical tensions and global slowdown worries, gold has not seen much safe-haven buying as investors are largely moving towards the dollar index.<\/p>\n “Gold prices might remain under pressure until the dollar continues to gain momentum,\u201d says Ravindra Rao, vice-president-head, commodity research at Kotak Securities.<\/p>\n For Indian investors, gold is also a hedge against depreciation in the rupee and its adverse impact on inflation in the country and other asset markets.<\/p>\n This could create a situation where gold prices in the domestic market may continue to rise or at least stay strong, even if they remain under pressure globally due to a surge in the dollar index and higher bond yields in the US.<\/p>\n<\/div>\n[ad_2]\n<\/p>\n News From This Website <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"![\"Gold\"](\"https:\/\/im.rediff.com\/news\/2018\/jan\/31budget-gold.gif\" "\\"Gold\\"")
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