India is the second largest consumer of gold globallyGold is often seen as a bet characterised with safety in times of elevated geopolitical or financial risks.
Besides, gold also provides a good hedge against inflation.
Financial experts advise a small allocation towards gold as a hedge towards volatility and uncertainty.
Global gold prices, which mostly determine domestic rates, have benefited in recent weeks from concerns over the US-China trade dispute, sanctions on Russia and unrest in the Middle East, but have been kept in check by the prospect of further interest rate hikes from the Federal Reserve, the US central bank.
In such a scenario, what are the key things to watch to understand the movement in gold rates1) Gold prices are typically influenced by monetary policy announcements, economic data, strength of the US dollar, supply and demand, inflation, currency movements, activity of ETFs or exchange-traded funds and jewellery demand, credit ratings agency CARE Ratings said in its report on gold outlook for 2018.2) While acknowledging volatility in gold prices in the past financial year (2017-18), CARE Ratings has pointed out that volatility in FY18 actually reduced to 10 per cent from 14 per cent in FY17.
Global gold prices increased from $1,253.5 at the beginning of April 2017 to close at $1,325.48 at the close of March 2018, an increase of 5.7 per cent, it noted.3) CARE Ratings expects global gold prices to remain range-bound around $1,350 per ounce in the short term.
In the medium term, geopolitical tensions in the Middle East, increasing US government debt and rising inflation pressures, volatility and lower equity markets could support gold prices, the agency adds.4) Gold vs US dollar: Historically, gold and the US dollar have had a negative correlation, CARE Ratings said.5)Global gold demand: Global gold demand dipped in 2017 by 7 per cent, reversing the strong growth demonstrated in 2016.
In 2017, jewellery demand grew by 4 per cent to 2,135 tonnes supported by robust demand in India and China.6) India gold demand: India is the second largest consumer of gold.
Despite a nine per cent increase in gold demand in 2017, it is below the eight-year average of 865 tonnes.7) Gold ETFs or exchange-traded funds: As equity funds have generally outperformed gold ETFs in FY18, investors redeemed Rs 835 crore from gold ETFs, making it the fifth consecutive financial year of outflow.