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Gold’s status gets a booster dose

Mumbai: If you long for something very badly and fervently aspire for it, then, all the forces of the universe will conspire together to make that thing/event happen. That is a rough translation of a very filmy dialogue from a popular Hindi movie.

Gold seems to be in that zone as it jumped by almost $100 per ounce during last week alone. It crossed the $1,500 per ounce mark for the first time since 2013 and even ended at $1,506.05 per ounce on August 7, 2019.

In futures trading the yellow metal hovered around $1,522-26 per ounce region. In the domestic market, gold scaled an all-time of almost Rs 38,000 per 10 gms (999 gold) in Delhi. So, let us now unravel how all the forces in the universe helped gold last week.

Firstly, the 0.25% rate cut by the US Fed coupled with news that most central banks were keen on changing stance in its monetary policies and reintroduce quantitative acted as a catalyst for the gold price. Even the RBI announced a 0.35% rate cut.

Secondly, the US-China trade war took a turn for the worse when the US called China a currency manipulator. In addition the US decided to impose more curbs on Chinese goods from September 1.

This happened after the Chinese yuan crossed 7 yuans to a US dollar mark. China too took a retaliatory stance. It also decided to double its gold reserves in its central bank. All of which can only help the gold price rise further.

Thirdly, nearly all the central banks in the world continue to buy gold into its reserves. In the current year, central banks (with Poland, Russia and Turkey leading the way) have purchased more than 400 tonnes of gold so far.

Fourthly, geopolitical tensions seem to spring up everywhere in the world. Unrest in Bahrain, allegedly supported by Iran, is raising temperatures in the region that is already simmering due to the Iran-US-UK standoff. Even the decision by India to reorganise the J&K region is sought to make an international issue by our neighbour.

An intervention by United Nations (UN) is being pursued and UN Secretary General’s call to abide by the Shimla agreement could make the region a potential focus of attention in the future.

North Korea’s belligerence in the wake of US-South Korea joint activities in the region can only add to the tensions in the world. That could only enhance gold’s status as a safe haven.

Fifthly, the US president appears to be very determined to cut interest rates as he wants the dollar to weaken (to aid in the trade war with China).

He has been relentless in this pursuit and has put enormous political pressure on the fed to cut interest rates by at least 0.50% in September and December. That in turn could weaken the US dollar and ultimately the economy. All of which could only give a big boost to gold.

Finally, the vexed Brexit issue has seen another British PM bite the dust. Everything points to mid-term polls in the near future. More importantly for gold, since May of 2019, the gold price shot up by 25% in pound terms. No Brexit could give a great fillip to the gold price.

Overall, gold is set to explode in the coming weeks. The next week is crucial for both the US and Chinese markets. Data emanating from these economies, if short of expectations could benefit gold.

Chartists expect gold to soar high even up to $1,580 per ounce and even higher. And should the US impose fresh tariffs on China from September 1, 2019, gold could go through the roof.

The IIJS (India International Jewellery Show) opened rather dull on the first day (last week), reeling under the high gold price of over $1,500 per ounce and nearing Rs 38, 000 per 10 gms in India. The first impression is that the show could see less of buying and more of networking.

On a positive note, Indian jewellery exporters are optimistic that the punitive 10% duty on Chinese jewellery exports into the US would benefit Indian jewellery exporters, even with yuan devaluation. Whether the Indian exporters grab the opportunity or only “look at the gift-horse in the mouth” is a matter of conjecture!

Sanjiv Arole is an independent analyst of precious metals and diamond,who has worked with GFMS and WGC.