is gold gathering dust?
Neeraj Chopra’s gold medal winning javelin throw at the Olympics is the only thing anyone is talking about. first-ever Indian athlete to win a gold? naturally, everyone’s over the moon. Indians are loving the gold medal, however, not gold itself. this once beloved commodity, it seems, has fallen out of favour.
at the end of last week, the price of gold stood 13% below what it was 12 months ago. this is the worst performance over a 12-month period since the 19.8% dip between 16 July 2007 and 15 July 2008, following the global financial crisis. the worst period since then was in 2013, when it dropped 14.08%.
the present situation might top that as Indian gold price futures dropped 2% on Friday on strong US job data, sparking rumours of a stimulus taper from the Federal Reserve. a tapering of stimulus means an end to the generous influx of money into the system.
however, that’s not the only reason. there has been plenty of liquidity over the past year, so why haven’t gold prices increased? the answer is the performance of the stock and cryptocurrency markets. many of these assets have returned manifold profits for those playing their cards right, and much of the fresh liquidity has been poured their way. this is reflected in the fact that the Indian stock market, like many others, is around all-time highs. pandemic notwithstanding.
now, the stock market rally might still go on for a while. But one of its potential threats is rising inflation. the recent RBI monetary policy meeting hiked India’s target inflation rate for FY22 to 5.7% from its earlier projection of 5.1%. that means it expects things to get costlier while it keeps interest rates unchanged in favour of economic growth.
with things getting costlier, people will have less money to spare for investing in the markets. they may even have to book some profits on their investments over the past year. even for those with plenty of liquidity, a further drop in gold prices might present a buying opportunity too good to be ignored.
this could spell a change in fortune for gold, which has long been considered a hedge against inflation. there are also more ways to invest in it than just buying gold jewelry or a bar. also, the fifth tranche of the Indian government’s Sovereign Gold Bond sales is currently open, with a sixth to come. the price may be low now, but it could start trending upwards once again.