Singapore: There is bad news for Kashmir’s upcoming wedding season Gold prices have surged to the highest level in six years.

As fresh US sanctions on Iran added to uncertainty in global markets, with Iranian foreign ministry spokesman Abbas Mousavi quoted as saying that the diplomatic path with Washington is closed “forever,” gold prices are likely to go up further.

In India, on the Multi Commodity Exchange (MCX), gold for delivery in August contracts traded higher by over 1% to ₹34,810 per 10 gram. The gold for delivery in October contracts, too, rose by over 1% to ₹35,020 per 10 gram.

Five reasons why gold prices are going up

1) Hareesh V, head of commodity research at Geojit Financial Services, says that the growing tensions in the Middle East and dovish comments from the major central banks have boosted the yellow metal’s safe haven appeal. The latest trigger for gold’s rally is US Federal Reserve’s signal that it may cut rates as early as next month to combat economic risks. The European Central Bank also said last week it would ease policy again if inflation fails to accelerate, echoing other central banks which have said they may cut rates to fend off economic slowdowns.

2) “A weak dollar, which plummeted to a three-month low on expectations of an imminent interest rate cut by the US Federal Reserve, also assisted the sentiments,” he added. Lower interest rates help gold by pushing down bond yields, reducing the opportunity cost of holding non-yielding bullion. They also tend to weaken the dollar, making dollar-priced gold more affordable for buyers with other currencies.

3) Market expect Sandip Sabharwal believes that there is further upside left in gold. “One of the key reasons is that today gold is very under-owned in investor portfolios. More and more allocations will happen as price moves up and as people start recommending gold as an asset class.”

4) Gold prices have also been supported by central banks buying the metal at the fastest rate in decades to diversify their reserves. A Motilal Oswal report citing World Gold Council data, said that global central banks are among the world’s largest investors in gold, with total holdings of more than 30,000 tonnes as on February 2019.

5) Some analysts however caution that the increase in speculative positioning, however, leaves gold vulnerable to a correction if investors reverse their positions. Against that backdrop, speculative investors have piled in. Their bets on higher gold prices on the COMEX exchange now outnumber wagers on lower prices by 189,681 contracts, the most in more than a year. That is equivalent to almost 19 million ounces, worth some $26 billion.That could be triggered by a positive outcome in trade talks between Trump and Chinese President Xi Jinping at a G20 meeting on June 28-29, or healthy US economic data that would reduce the likelihood of rate cuts, said Standard Chartered analyst Suki Cooper. Global exchange-traded funds (ETFs) meanwhile have added more than 2 million ounces to their holdings since early May, helping push prices higher.

Archivies