Many Indians regard Dhanteras as a propitious occasion for buying gold. Many jewelers will have been launched promotional plans to lure buyers of gold, while stock markets have been expanded trading hours for trading gold on Tuesday.
For Indians, gold is not only a product but a promising metal buying for different purposes at different times. Before Diwali and Dhanteras, on Monday, gold and silver prices have accelerated. Here is a cheat-sheet of 10 points to understand how the prices of gold could be affected:
- Analysts say that historically October has been seasonally a good month to buy gold. Vikas Vaid, product head of commodity and currency of Prabhudas Lilladher Group, said it has been observed that historically gold prices bottomed out in October and November is a strong month for the yellow metal in terms of prices.
- Domestic gold prices are hovering around Rs. 27,500 levels per 10 gm, down nearly 17 per cent from its highs of over Rs. 33,000. Domestic gold prices have slipped in tandem with a drop in international gold prices. Mr Vaid said buyers could take advantage of the current softness in gold prices to buy some yellow metal in their portfolio. An investor should have 5-10 per cent of his portfolio invested in gold, he said.
- Since India imports most of its gold requirement, international prices are a key determinant of domestic gold prices. In international markets, gold was trading at around 1-month high levels of $1,236 an ounce. Mr Vaid expects gold prices to remain supported due to its appeal as a safe-haven asset class as there are concerns about global growth, Ebola, Middle East crisis etc.
- The value of dollar is also a key determinant of commodity prices like gold and oil, which are denominated in the greenback. The dollar index, which measures the currency’s value against a basket of major global currencies, had recently hit a four-year high on the back of optimism about the US economy. The dollar’s rise further could negatively impact international gold prices. The rupee’s value against the dollar also is determinant of gold’s price in India.
- However, there are also expectations in some quarters that the US Federal Reserve may delay a rate rise due to uncertainties in global growth, particularly in the Eurozone. An easy-money policy from the US Federal Reserve may also keep the global gold prices supported. James Bullard, who heads the St. Louis Fed, recently suggested that the US Fed could stick with its stimulus programme for a few more months.
- There has been speculation that the US central bank could bring its so-called quantitative easing of monetary policy, or QE, to an end at its next meeting on October 28-29.
- Gold imports into India attract import duty of 10 per cent. There are expectations among traders and jewellers that the Indian government could lower the import duty. A lowering in import duty could bring down the domestic prices of gold. But the government is likely to remain cautious as a rise in gold imports resulting in trade deficit rising sharply to 18-month high of $14.25 billion in September. Gold is India’s second-biggest expense on imports after oil and a spike in gold imports affects India’s current account deficit. Trade Minister Nirmala Sitharaman had said in September there was no immediate plan to cut the gold import duty.
- Recently, the government deregulated diesel prices taking advantage of a sharp fall in global oil prices. Mr Vaid of Prabhudas Lilladher Group says that global gold prices would also be a key factor in the government’s import duty policy.
- National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) have decided to extend the trading session for gold exchange traded funds on Tuesday till 7 pm.
- Besides, both the bourses have decided to waive off the transactions charges for all trades in gold ETF securities on that day. Gold ETFs track the precious metal’s prices and each unit of these securities is generally equivalent to one gram of gold. Returns from Gold ETFs are linked to the domestic price of physical gold but spare the investors from the trouble of buying and keeping the yellow metal in physical form.
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