Gold prices fell in India on Monday, according to data from India's Multi Commodity Exchange (MCX).
Gold price stood at 72,209 Indian Rupees (INR) per 10 grams, down INR 509 compared with the INR 72,718 it cost on Friday.
As for futures contracts, Gold prices decreased to INR 72,046 per 10 gms from INR 72,727 per 10 gms.
Prices for Silver futures contracts decreased to INR 84,480 per kg from INR 84,791 per kg.
Major Indian city | Gold Price |
---|---|
Ahmedabad | 74,805 |
Mumbai | 74,500 |
New Delhi | 74,520 |
Chennai | 74,790 |
Kolkata | 74,660 |
Gold price has reversed lower following the release of the University of Michigan Consumer Sentiment Survey on Friday, which showed a surprise fall in sentiment whilst at the same time higher inflation expectations.
The preliminary University of Michigan Consumer Sentiment index for May fell to 67.4 from 77.2 when economists had expected a much gentler decline to 76.0.
At the same time, the long-run inflation expectations component rose to 3.1% from 3.0% previously.
Higher inflation expectations suggest the Federal Reserve (Fed) may continue to delay its expected move to cut interest rates. This is negative for Gold since higher interest rates increase the opportunity cost of holding Gold compared to interest-yielding assets like bonds or cash.
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Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.