Gold prices soar 7% in August as economic uncertainty continues

Rising uncertainties in the macro-economic environment led to a new record for gold in the first week of August when it crossed $2,000/ounce mark for the first time in history. It continued in the same range for successive days and touched nearly $2,100.

With the global outbreak of COVID-19 and rising fears of recession, gold continued to shine. Prices rose by nearly 31 per cent in FY20 and 28 per cent in CY20.

Gold has outperformed all other major asset classes this year. However, this surge in prices is due to rise in exchange traded fund (ETF) investments, and not the traditional jewellery demand from consumers. Year-to-date inflows reached new highs of $74,092 million.

Globally, 35,018 tonnes of gold is held as reserves, and of this,10,773 tonnes are in the European region. As per the World Gold Council, US has the largest official gold holding with 8,134 tonnes, while India is on the 10th position with 658 tonnes of gold.

India is the second largest consumer of gold. However, in past 5 years imports of this precious metal is on a decline, from $31.7 billion in FY16 to $28.1 billion in FY20. In first three months of FY21, imports fell to historical lows of $688 million, decline of 94 per cent (YoY).

Import of gold has become costlier for India. In FY16, the average cost of gold for import was 32.7 million dollar per tonne whereas in Q1FY21, the import price increased to 49.1 million dollar per tonne.