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Gold plunges around 10% in 2 days amid profit-booking, hopes of COVID vaccine

Net asset values (NAVs) of gold mutual funds (MFs) also fell by up to 7 per cent following the fall in spot and futures prices. Indian MFs have Rs 12,940 crore of assets under management in gold ETFs.

By: ENS Economic Bureau | Mumbai | August 13, 2020 3:11:31 am
Under GST, e-way bills are required for inter-state transportation of goods valued over Rs 50,000. However, gold is exempted. (Source: Bloomberg)

Gold prices, which hit a high of Rs 56,000 per 10 gram recently, plunged by around 10 per cent to Rs 50,000 level in two days following a sharp fall in international prices amid profit-taking and reports about a COVID-19 vaccine hitting the market. After the initial steep fall, 22-carat gold at the Mumbai spot market closed down Rs 1,980 at Rs 51,400 per 10 g. Meanwhile, silver closed at Rs 65,000 per kg, down by Rs 7,500.

Net asset values (NAVs) of gold mutual funds (MFs) also fell by up to 7 per cent following the fall in spot and futures prices. Indian MFs have Rs 12,940 crore of assets under management in gold ETFs.

Nish Bhatt, founder & CEO, Millwood Kane International, said, “Gold prices saw the worst fall in years as it slipped from an all-time high of Rs 56,000 to below Rs 50,000 per 10 g level in early trade today. The over 10 per cent fall in the prices of yellow metal is due to Russia approving a vaccine for Covid-19 and profit-booking by traders as gold saw a sharp rally and a correction was due.” In international markets too, gold prices were on the slide after touching $2,000 per ounce level, and fell below the $1,900-level.

The gold futures contract lost 4.58 per cent on Tuesday, as it accelerated its short-term decline from Friday’s new record high price level of $2,089.20. Spot gold declined to a near three-week low of $1,872.19, resuming its free fall after a brief hiatus in early trade.

The recovery in the dollar index also pushed gold prices down. Gold has become investors’ favourite since the start of the year due to Covid-19 and subsequent easy liquidity by global central banks.

“Going forward, clarity on the availability of the vaccine, next stimulus package by the US government, tensions and tariff war between US and China and the ability of governments to control the number of cases will guide the future course for Gold,” Bhatt said.

Despite the ongoing US-China geopolitical tensions, MCX gold also dropped by nearly 10 per cent due to the delay in US fiscal stimulus. “But there is enormous uncertainty and it will get harder as we near the US election phase. So we may see safe haven demand boosting gold prices and bottoming out at around Rs 49,000 per 10 gm and back towards Rs 54,000-55,000 per 10 g,” said Rahul Gupta, head of research, Emkay Global Financial Services.

The Reserve Bank of India had last week decided to increase the permissible loan to value ratio (LTV) for loans against pledge of gold ornaments and jewellery for non-agricultural purposes from 75 per cent to 90 per cent. This relaxation will be available till March 31, 2021.

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