NEW DELHI: Gold prices have experienced a notable surge in recent weeks, with the yellow metal witnessing an increase of over 11% in India alone.
A recent report from Goldman Sachs highlights that this surge is not solely driven by traditional factors, indicating a shift in the dynamics of the gold market.
The report underscores the significant role played by new incremental factors, particularly the surge in accumulation by Central Banks in emerging markets (EM) and increased retail buying in Asian markets including India have led to an increase in gold prices worldwide.
Despite expectations of fewer Federal Reserve rate cuts, strong growth trends, and record-breaking equity markets, gold has rallied by 17 percent over the past two months.
Analysts at Goldman Sachs note that the traditional fair value of gold, which typically correlates with real rates, growth expectations, and currency strength, does not fully explain the recent price movement. Instead, unconventional factors, supported by current macroeconomic policies and geopolitical tensions, have been pivotal in driving gold’s bullish momentum.
Moreover, the anticipation of potential Federal Reserve rate cuts later in the year, coupled with right-tail risks from the US election cycle and fiscal policies, further reinforces the positive trajectory of gold prices.
While the report outlines key measures that could potentially control gold’s bullish momentum, such as a peaceful resolution to geopolitical tensions, major emerging markets Central Banks’ gold buying programs, and stabilization in China‘s growth concerns, the likelihood of significant impact in the near term remains low.
Overall, the report underscores the expectation for continued bullish momentum in gold prices, emphasizing the evolving dynamics and the influence of unconventional factors in driving the precious metal’s value.
While the increase in gold prices is advantageous for gold owners, higher prices pose challenges for consumers, particularly in countries like India where gold holds cultural significance. The impact extends to the economy, affecting India’s current account deficit and trade balance.
Interestingly, both gold and stocks are currently reaching record highs. In India, both gold and Sensex has surpassed the magical 75,000 figure.
