The surging gold prices have hit a record high in the country because of domestic and international factors, reports say. The weakness in the equity market that eroded billions of rupees in investor wealth since the unveiling of Prime Minister Narendra Modi government's first Union Budget of the second stint has been driving investors to safe-haven investments like gold and silver.
A tax surcharge on super-rich investors that Finance Minister Nirmala Sitharaman introduced had resulted in capital flight keeping out foreign portfolio investors (FPI). Investors were also miffed by the stipulation that companies need to set apart 35 per cent of equity for public holding against 25 per cent.
Internationally, the uncertainties arising from the US-China trade wars stoked on and off by shock actions of US President Donald Trump and Chinese President Xi Jinping. The oil price fluctuations stoked by the US-Iran tensions following the scrapping of the Iran nuke disarmament treaty have also contributed to stock market uncertainty. Yuan Renminbi's slump to below CNY7 a dollar triggered the perception that Beijing was deliberately weakening the currency to escalate the trade war. The fear drove many investors to exit currency positions and seek out safe-haven precious metals. Yuan has since recovered to trade above CNY7, according to reports.
On Multi Commodity Exchange (MCX), the October gold contract rose 0.44 per cent to Rs37,925 per 10 grams on Friday, the Livemint website reported. The gold prices had hit a fresh high of Rs 38,488, buoying another precious metal silver that rose 0.8 per cent to Rs 43,417.
The investor eagerness for gold futures did not reflect on the spot market with gold price plummeting by Rs 140 though it still managed to remain above the important Rs 38,000 mark at Rs 38,330 per 10 gram, the report said citing the India Sarafa Association. In New Delhi, gold of 99.9 per cent and 99.5 per cent purity fell Rs 140 to Rs 38,330 and Rs 38,160 per 10 gram, respectively.
In the global market, spot gold prices remained near the more than six-year peak, rising 0.3 per cent to $1,505.20 an ounce as investors' appetite for the safety of the precious metal amid worries about the US-China trade tensions. Gold prices surged during the week as investors scrambled to find safe-havens. Global equity and currency markets have been on a tailspin after China's perceived currency devaluation.
Currencies have also weakened around the globe from the expectations of further monetary easing by global central banks. Some analysts have bet on further cuts from US Federal Reserve after the US central bank cut the rate for the first time in a decade last week. Trump's call for further rate cuts to spur growth. Lower interest rates benefit non-interest yielding asset classes like gold. Reflecting investors appetite for gold, holdings in the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, has risen 7.3 per cent so far this year.