Srinagar, March 9: As gold prices fall to almost 11-month low to Rs 44,600 per 10 gramme, consumers in Jammu & Kashmir are confused about the market dynamics and the reasons for largely steady gold prices here.
As the wedding season is about to begin in Kashmir region, families are rejoicing about the fall, while those who had invested in gold assets in recent months are confused about the situation.
Leading gold jewelry association members told Ziraat Times that such fall creates difficulties both for the jewelry makers and the consumers.
“We usually stock gold assets in anticipation of the wedding season sales. Such fall in prices hit us badly. While those who buy at lower prices stand to benefit, there are thousands of families who plan a selloff to fund their other needs, face difficulties”, Rajender Shekhar, a Srinagar-based jewelry maker told Ziraat Times.
From the highs of Rs 57,000 per 10 gramme in August last year, the yellow metal price has come down by 22 per cent or Rs 12,400 per 10 gramme. Gold prices have eased due to an improving global economic outlook, mainly because US and global bond yields have continued to rise, and investors have dumped gold assets as an option of long term investment.
Better than expected jobs data led the benchmark US 10-year bond yield to soar as high as 1.62 per cent last week, the highest in 12 months.
This uncertain situation is leaving potential buyers in J&K confused whether it is really the right time to buy gold or not.
“Buyers are gasping for answers. The steady prices in the market make them wonder whybthere are no changes in J&K following the countrywide and global changes. Moreover, they have no idea of the medium term and long term outlook for gold prices. In Kashmir jewelry is a major component of wedding ceremonies and a major investment option for people. But there is overall confusion”, Bashir Ahmed, a gold trader said.
“Higher yields reflect improving economic outlook but also increased inflation and interest rate hike expectations. Equities and commodities in last few months have benefitted from huge monetary inflow and prospect of inflation and higher borrowing costs have led to some nervousness. Gold yields no interest so it generally weakens when returns on bond increases,” says Madhavi Mehta, Commodity Research Analyst, Kotak Securities.
Will gold prices fall further?
Industry experts believe the weakening of gold prices may be short-lived. A weakening dollar, growing inflationary pressure, debt accumulation and monetary expansion are all drivers for positive gold price.
“By committing to keep interest rates where they are now for the next couple of years, Powell has endorsed a decline in the dollar. Combine that with more spending with Biden’s $1.9 trillion fiscal stimulus and expected infra splurge and you have ballooning deficits and further increase in debt which will keep the dollar under pressure,” says Chirag Mehta, Sr. Fund Manager-Alternative Investments, Quantum Mutual Fund.
Mehta explains that with more money trickling down to the real economy due to additional spending, the market is expecting robust inflation going forward, which too will contribute to the dollar’s downtrend. “International Gold may thus see some positivity in the coming weeks,” he adds.
With inputs from BT