Gold has been an investment asset class without sheen for the last three years; it tumbled again on Friday, for the third week, to close at its lowest in 14 months. But it is good news for consumers, who have a voracious appetite for gold. On Friday gold fell to Rs 26,870 per 10 grams, well below the psychological comfort level of Rs 27,000 per 10 grams in Mumbai’s gold hub of Zaveri Bazaar.
As is well known, when the dollar strengthens, gold loses its lustre. It is the same when the equity markets are buoyant. Money moves from commodities to equity. The dollar strengthened as the US Federal Reserve, the equivalent of India’s Reserve Bank of India, indicated that it could raise interest rates by mid-2015.
The US economy is showing signs of a revival and this could mean further strengthening of the dollar. A strong dollar means gold loses its safe-haven character because, when the dollar is weak or there is a global crisis, gold is seen as a safe bet. Also, when the dollar strengthens, gold is expensive for countries like India whose currencies are weak against the dollar.
The stock markets have been buoyant in recent times despite a few blips, so investors have been getting out of commodities and investing in equity markets. The Sensex has rallied 25 per cent in the last six months and is expected to rally further as the Narendra Modi government kicks in its various development programmes.
