The price of gold in the national and state markets has soared to record levels. The price of one pavan (22 carat, 8 grams) of gold in the state has gone up to Rs 46,480. In the nationally important Mumbai market, 10 grams of 22 carat gold was trading at Rs 57,350 and 10 grams of 24 carat gold was trading at Rs 62,560. The gold price in the international market is also at a seven-month high.
It was after the outbreak of conflict between Palestine and Israel in the first week of October that pushed the gold prices higher which were relatively low. Those who waited to buy gold when the price fell were cut off. Meanwhile, after Israel and Hamas announced a cease-fire, there was hope that the price would drop, but gold jumped in the international market. In this context, let’s examine the reasons for the rise in gold prices.
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Dollars and interest rates
The dollar index, which measures the value of the US dollar against six major currencies, fell to a three-month low, boosting gold prices. This is because the cost of buying gold is lower for investors holding alternative currencies who have to pay dollars in the international market, so the demand rises.
Likewise, indications that the US central bank, the Federal Reserve, will temporarily withdraw from interest rate hikes to curb inflation are supporting gold. The general conclusion in the market is that the Fed Reserve will not raise interest rates in the December monetary policy meeting. And an earlier-than-expected, higher-than-expected rate cut by May 2024 has risen to 60 per cent, helping gold (due to lower opportunity cost of non-interest-bearing assets).
Market experts point out that after the complete lifting of the Covid restrictions, the news of a new illness reported among children in China was also a factor in the jump in gold prices. The Chinese Ministry of Health has clarified that there is no new type of virus behind the increase in pneumonia among children in the country. But with the World Health Organization (WHO) sharing concerns over the outbreak in China, gold as a safe-haven investment is a factor boosting demand.
Will the price rise in 2024?
There are many factors that can influence the market next year. One of the most important of these is the US presidential election. Investments can flow into gold as part of hedging risk factors. Similarly, worries about the global economic slowdown can also support gold. The performance of stock markets in Europe will be crucial. Even if there is a setback there, the demand for gold can rise.
Likewise, real yields on US bonds, which tend to fall especially when tied to inflation, could attract more funds to gold as a safe-haven investment. In short, market experts indicate that the gold price is more likely to rise in 2024 due to economic and geopolitical risk factors.
According to a report released by Wisdom Tree Investments, a global ETF services provider, the price of gold is expected to reach $2,090 per troy ounce by the third financial quarter of next year. In the worst-case scenario, if a bull situation emerges in the gold market, gold may jump to $2,300, according to a report by Wisdom Tree Investments.