Gold prices, which had been trending lower over the past few months, spiked in October after the outbreak of the war between Israel and Hamas. With the war now threatening to spill over into new territories, prices could rise even further ahead of the festive season in India.
“Jewellers were quite confident a few weeks back that there would be considerable demand during the festive season, when prices dropped to close to Rs 56,000 (per 10 grams) at the start of October,” said Ravindra Rao, head of commodity research at Kotak Securities Ltd.
“The prices had been depressed because of the rise in bond yields in the U.S.,” he explained.
A rise in bond yields and a stronger dollar usually correspond with a drop in gold prices. In recent weeks, the yield on the 10-year Treasury in the U.S. has risen to 16-year highs. The Hamas attack on Oct. 7 prompted a sharp uptick in gold prices in the international market. Prices in India have followed suit, as they usually do. India is a price-taker when it comes to gold because most of it is imported.
Traditionally, festive demand has remained inelastic, despite elevated prices, but investment demand could be muted, Rao said. In recent years, more individuals are turning to non-physical gold for their investment requirements, and the quantum of investment in these products could be muted, he said.
“The initial levels on the upside that we're tracking are Rs 60,300 per 10 gram,” Rao said. “If it moves above and then sustains, we could see levels of Rs 61,800.”
Rao cautioned that it is very difficult to predict movement in gold prices in the given circumstances, as a cooling off of geopolitical tensions could bring prices lower very quickly.
Despite a muted performance since May this year, gold prices are up by over 17% from a year ago.
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