Gold hits record high on global banking turmoil

On Monday, the Multi Commodity Exchange (MCX) saw gold prices leap to an intraday record as investors flocked to safe-haven assets in the wake of the US and European banking crises. The price of the precious metal increased to 60,455 per 10 gm (excluding 3% GST) on the MCX, while it reached a 31-month high of $2,009.21 per ounce on the international market (32.10 gm).

Demand from consumers for the precious metal has decreased as a result of the price increase of over 5% in only one week. The value of those who invested in sovereign gold bonds and gold ETF plans offered by mutual funds, however, has increased.

“We’re taking off for safety,” “said Shekhar Bhandari, Kotak Mahindra Bank’s president of global transaction banking. “Liquidity is a problem because of rising interest rates in the US and Europe and banking crises in those regions of the world, which have made investors less willing to take risks and caused riskier assets like stocks and bonds to decline. This is the finest time for gold, whose appeal as a safe haven may last for the upcoming quarters.”

Gold serves as a safe haven asset during uncertain times and a hedge against inflation. With three US banks failing in the last week, Credit Suisse being acquired by UBS in Switzerland, and rising interest rates in those regions, the metal is surging as the US Fed and ECB hurry to establish backstops. Also, it happens before the Fed’s rate-setting panel raises its benchmark interest rate on Wednesday. Yet, given that India is the world’s top importer of gold, having brought in a total of 763.7 tonnes of bullion last year, a sharp increase in the price of the dollar and a falling value of the rupee damaged domestic demand for the precious metal.

“The present price increase has severely hurt consumer demand, “LSEG Lead Analyst at Refinitiv Metals, Debajit Saha, stated. The $33 per ounce discount (or 840 per 10 gm) in the local wholesale gold market from the bank rate indicates a lack of demand.”

Mostly RBI-approved banks that import gold on a consignment basis are how the metal enters the nation.

98 tonnes of sovereign gold bonds worth 42,955 crore were outstanding with subscribers as of 27 December 2022, indicating that investor interest for the securities had started to pick up. This contrasts with the net assets managed by gold ETFs, which total $21,400 crore. “When a wave of banking crises rattled global markets and set bullion on track for its biggest weekly advance in three years, gold on the domestic front touched a new lifetime high of over 60,000, “the senior vice president of commodity research at Motilal Oswal Financial Services, Navneet Damani. The overall trend on the US-based exchange COMEX may be between $1,985 and $2,015 per ounce, while domestic prices may be between 59,800 and 60,600.”