Page 27 - Bullion World Volume 4 Issue 11 November 2024

Bullion World | Volume 4 | Issue 11 | November 2024

Dynamics of Gold and Dollar: Demand buoyancy:
The dollar movement and gold prices are inversely In Jul '24, India slashed the import duty on gold from
proportional to each other. Since gold prices are 15% to 6% (lowest since Jun’13) with the objective
denominated in US$, whenever there is a dollar to deter smuggling and boosting the demand. The
appreciation, it translates to lower gold prices. In the last reduction resulted in a temporary blip in domestic prices
5-years, the gold prices have scaled up by 10% while which corrected as international gold prices remained
the dollar index is up by 2%. On the FYTD basis, the in the upswing. Higher demand due to festive spending
gold prices have registered double digit growth of 25.4% on account of traditional buying has overall resulted in
so far, while the dollar index for the same period is up a demand surge. Above normal monsoon along with
by 0.5%. During the same period, there is a negative higher acreage for kharif sowing is expected to boost
correlation of (-) 0.6 noted between these two variables. rural income and support more purchases this year.
Against this demand resurgence, in H1FY25, gold
The US Fed began the monetary easing cycle with the imports have accelerated to US$ 27.1bn compared with
supersized 50bps rate cut in Sep '24 and is expected US$ 22.2bn in H1FY24, taking the double digit growth
to reduce the rate again in the upcoming meeting to 22.1%. In FY24, it rose by 30% to US$ 45.5 bn after
scheduled in Nov’24. The lowering of rates tends to declining by 24.2% in FY23.
weaken the dollar, pushing away the investors and
resulting in capital outflows. Gold as a non-yielding Outlook:
asset turns out to be more attractive during this period. Compared with other asset classes, on a FYTD basis,
Softness in the greenback pushed the gold prices international gold prices are up by 25%, the dollar index
higher. With more rate cuts anticipated, gold prices are is up by 0.5%, and Sensex and Dow Jones are up by
expected to continue with the upward momentum. 28% and 24% each. Equity indices this year have near
about given return that is on par with gold return. The
India story upcoming outcome of US Presidential election can
In India’s context, there has been a steady increase in also have some bearing on the gold prices. Trump’s
gold reserves, with a pick up noted in the last 5-years, presidency could be inflationary given the imposition of
resulting in an average increase of 18.3%. In FY24, the tariff sanctions and lowering of taxes as part of policy
gold reserve registered an increase of 16.5% against an measures.
increase of only 6.2% in FY23. Moreover, this steady rise
has also been captured if one notes a higher proportion The rally in gold prices is expected to continue in the
of gold to total Forex reserves. Back in FY19, the near term in the wake of global economic turmoil,
proportion of gold to forex reserve stood at 5.6% and outcome of US Presidential elections, escalating
this has increased to 8.1% in FY24. RBI held a significant geopolitical risks, monetary easing by global central
portion of gold reserves to the tune of 822.1metric banks and is expected to serve as crucial tailwinds for
tonnes in FY24 compared with 794.6metric tonnes in price movement.
FY23.

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