Gold prices are down by about 4% so far this year. What is the outlook for gold prices?
We do not forecast prices but we have seen softening of gold prices. Partially it has to do with the global factors like the US treasury yields and a little more optimism about growth in all the economies. But more importantly, we also had a duty cut. All these factors played together to bring the price down in India. It is already around Rs 46,000 now which is in a sense good for the consuming market because one of the reasons last year we saw record low demand was the high prices.
Of course, logistics also played a part but the high prices did put off consumers. This is a good development as far as the consuming market is concerned even as the industry is trying to come back. We don’t forecast prices but medium-term fundamentals still seem very solid for gold. But what has happened in the near term is good for demand in India.
What has been the demand patterns in India especially since prices started ebbing off?
People are definitely showing a lot more interest. As we enter Akshaya Tritiya in the next one-and-a-half, two months, the activity of the industry also will be high. A softer price is very good for consumers. Meanwhile, Covid cases are rising again. We have to keep all these in mind but it looks like the industry is optimistic about this price drop.
What do you make of the rise in all the commodity prices? Do you see people parking into safe havens like gold as inflation returns?
Last year, even in the later part of the year, equity markets were doing well but we saw $49 million inflow into the ETFs. That indicates investor interest in diversification as well as safe haven. There were certain outflows towards the end of the year but the net inflow still was one of the highest we have ever seen.
Gold must be seen very differently from other commodities because it also has a quasi currency status. The central banks hold it. We would probably look at lower prices as a buying opportunity even for the investors who missed out on the earlier rally. We are going to see volatility, but that is going to be the same everywhere.
We have seen even a pullback in equity markets and whenever there is a sharp pullback in equity markets, it is good for gold. So the medium term seems very good for gold as we still have surplus liquidity and low interest rates. All these are going to have a very positive impact on gold.
How long do people take to adjust to gold prices — whether it is rallying or falling?
When there is a sharp fall like we have now — a 4.5-5% fall — and when it happens closer to a buying occasion like Akshaya Tritiya, there will be a demand spike. But at this moment, people will be probably waiting and watching to see if Rs 46,000 falls further to Rs 44,000 or not. But close to Akshaya Tritiya, if the softness continues, more buyers will flood the market.
Similarly, when there is a sharp rise, people do not pull back immediately because jewellery buying is probably planned for occasions and they cannot just push it out. But they may buy a little less. So, the impact of a fall is higher than the impact of a rise.