Physical gold price dealers in India charged a premium over official domestic prices for the second week in a row as jewellers stocked up ahead of the festive season.
Demand from dealers has been improving slowly while a sharp drop in September imports also allowed dealers to charge a premium, analysts say.
Gold imports declined by nearly 53% to $601.43 million in September.
In the futures market, gold prices settled 0.3% lower at ₹50552 per 10 gram on Friday. For the week, gold settled marginally lower in tandem in with a decline in global rates.
In global markets, gold prices dipped over 1% this week, weighed down by a firm US dollar which has been supported during the US stimulus talks stalemate. Surging coronavirus cases in Europe have also helped lift the greenback as investors seek safety amid new lockdown measures.
Fading chances of a US stimulus agreement before the November 3 presidential election dented the gold’s appeal as an inflation hedge.
Gold, which has risen about 25% so far this year, is considered a hedge against inflation and currency debasement amid the unprecedented global levels of stimulus. In India, gold rates had hit a record high of ₹56,200 on August 7.
Analysts say that gold is likely to remain supported on the downside amid increasing challenges to the global economy. ETF inflows show buying interest in gold however the pace has been also modest.
Gold may remain choppy in near term, taking cues from US stimulus talks, Brexit negotiations, coronavirus outbreak and vaccine development, they say.
FUNDAMENTAL FORECAST FOR GOLD: NEUTRAL
The price of gold appears to be stuck in the September range as US lawmaker struggle to pass another round of fiscal stimulus, and the deadlock in Congress may continue to drag on risk appetite as it heightens the risk for a protracted recovery.
Investor confidence may continue to abate as the Federal Open Market Committee (FOMC) appears to be on track to retain a wait-and-see approach at the next interest rate decision on November 5, and it seems as though Chairman Jerome Powell and Co. will rely on its current tools to support the US economy as most Fed officials judged that “yield caps and targets would likely provide only modest benefits in the current environment.”
In turn, the Fed may continue to adjust its non-standard measures as Cleveland Fed President Loretta Mester, a 2020 voting-member on the FOMC, insists that the committee could “shift to longer-term Treasuries, as we did during the Great Recession,” and the dovish forward guidance may heighten the appeal of gold as an alternative to fiat currencies as the Fed’s balance sheet increases for the second week.
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