Gold has over the years been a perfect hedge against inflation. Investors are increasingly looking at gold as an important investment. But ever since the Corona virus outbreak, there has been a change in the price of gold and silver. Gold fell 3 percent on 17th of March, while silver, platinum and other precious metals extended heavy losses as concerns over the global economic toll which prompted investors to dump most assets and hoard cash.
“Cash and bonds are the king right now. It’s just the place where investors are seeing value in terms of what they hold,” OANDA analyst Craig Erlam said, adding precious metals seemed to be the go- to assets for investors liquidating positions.
“Investors hate uncertainty, but at the moment, we’re navigating completely blind. So, that’s why we’re seeing so much panic and unrest in the markets.”
Spot gold was down 2.6 percent to $1,475.26 an ounce at 12:04 GMT, having slumped as much as 5.1 percent on 16th of March to its lowest price since November 2019. US gold futures were down 0.7 percent to $1,475.70.
European stocks failed to rebound, following a sharp sell-off in the previous session triggered by panic over Corona virus and its impact on businesses and the economy.
The dollar rose over 1 percent against rivals, making gold more expensive for holders of other currencies. The pandemic has claimed more than 23 thousand lives and infected more than half a million people worldwide and forced countries and major central banks to ramp up measures to protect their economies from the outbreak.
“We believe that a major new factor may weigh on the gold price: the sharply falling oil prices and the increasingly likely economic recession could spark fears among market participants of a deflationary shock. That would be fatal for gold,” Commerzbank analysts said in a note.
Reflecting investors sentiment, holdings in the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust fell 0.2 percent to 929.84 tonnes on 16th of March.
Gold prices fall over Rs 5,500 per 10 gram in just 6 days as domestic gold prices have seen a steep fall over the past one week and in global markets too gold rates have tumbled amid flight to cash.
Gold prices continued to decline in domestic markets, extending their recent fall. On MCX, April gold futures fell 2% or about Rs 800 to Rs 35,755 per 10 gram. Gold had shed about Rs 5000 per 10 gram in previous five sessions, falling from Rs 44,500 levels.
Silver also continued to remain under pressure, with futures on MCX down 5% to Rs 34,500 per kg. In the previous session, silver futures had tumbled over 10% or Rs 4,200 per kg also following a steep correction in global rates.
The gold/silver ratio currently stands at 106.17 to 1, which means the amount of silver required to buy one ounce of gold. Silver prices jumped Rs 575 to Rs 40,900 per kg from closing on March 24. In the futures market, gold rate touched an intraday high of Rs 42,785 and intraday low of Rs 40,811 on MCX.
The price of silver in India is determined by international prices, which move in either direction. Other than that it also depends on the currency movement of the rupee against Dollar. If the Rupee falls against the Dollar and international prices remain stable, silver will become more expensive.
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Gold is typically viewed as a safe harbor in times of turmoil in global financial markets. But the recent sharp fall in the gold prices has been attributed to flight for cash amid heightened volatility across markets over the coronavirus scare.
In global markets, gold prices also fell sharply, extending their recent loss as investors rushed to raise cash amid rising panic in the financial markets over the coronavirus pandemic. Spot gold rates dropped 3% to $1,471 per ounce, after slumping 5% in the previous session.
Impact of coronavirus raises concern of a global recession and the stimulus measures should be bullish for gold, Bonanza Porfolio said in a note.