Gold trading at huge discount as prices hit record high, cross Rs 35k mark

Topics Gold  | Silver

Gold prices rose sharply on Thursday and reached an all time high in the Indian market. In Mumbai spot market, the precious metal was trading above Rs 35,000 per 10 gram. Silver prices also rose to over Rs 41,000 per kg.  

2019 has been one of the best years for gold investors as the metal has delivered returns of 12.5 per cent so far. However, due to high prices, the demand was very thin, as gold traded at a huge discount to the cost of import. Therefore, some stock traders who had old gold stock were selling it. Unofficially, imported gold being sold at much lower prices was pressuring jewellers who were not trading in grey market gold.

The high price of the precious metal has dealt a sharp blow to its demand in India. Today in Mumbai, gold was trading at a discount of $20-25 per ounce or Rs 500-600 per 10 gram when trading began. However, unofficial gold was selling at Rs 34,400 today, which is cheaper by Rs 700 for 10 grams than official gold and Rs 1,200 cheaper than the cost of import.

With tensions between the US and Iran in the Gulf getting uglier, and US Federal Reserve cutting interest rate in July-end have kept the gold and silver market on tenterhooks. In fact globally, fund managers are now debating whether the cut by US Fed will be 0.25 per cent or half a percentage point. New York Fed President John Williams said, "In a world where interest rates are lower than they have been historically, central banks must confront any sign of weakness quickly and aggressively, take swift action when faced with adverse conditions, and keep interest rates lower for longer," implying that the Fed should aggressively slash rates. He also said that policy makers could not wait for a disaster to unfold.

At high prices, "demand for new jewellery is very low as customers are not ready to buy at such a high price. In a few months, prices have risen by 10 per cent. Generally, people sell old gold when the prices rise but now even that has reduced as rising prices are luring them to hold gold instead of selling now and losing grip on such a precious asset," said Kapil Choksi, partner at Choksi Arvind Jewellers.

The silver price, which was lagging for quite some time has seen a sharp rally in past few days bringing down the ratio of gold price to silver price, which was at 93.3 last week, to 87.6. The ratio indicates how cheap is silver compared to gold.

Naveen Mathur, Director, Commodities and Currencies at Anand Rathi Shares and Stock Brokers said, “We are bullish on gold but because prices have rallied about 2 per cent in the week so far, we do not rule out the possibility of a dip. Comex gold has good support near $1,400; so, a fall to near this level is possible. On the flip side, $1,455 / $1,480 constitute stiff resistance. On the MCX, Rs.35,000 is strong support for coming sessions with 35,600 as resistance. Hence, we recommend going long on dips.”

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