Gold seems to be finally losing its sheen with the prices in the domestic market hitting a 22-month low while the same is at a three-year low in the global markets. Within June the precious metal lost a whopping 15 percent. Prices were volatile for months and the plunge gathered speed early this month when the US Federal Reserve said it would turn the easy money tap by the December or even before. This would lead to a spike in US interest rate which has been at 25 bps since the 2008 credit crisis.
Nearly 15 percent have been shaved off since the US Feds announcement on its bond purchase plans. The apprehension that the interest rate may rise has also added negative sentiment for gold prices. Gold closed at Rs 25,265 per 10 gm on Friday compared to Thursdays close of Rs 26,145. In Mumbai, gold closed at Rs 25,130 down Rs 880 from Thursdays closing of Rs 26,010. In the international market gold touched a near three-year low of $1,180.7 per ounce but recovered to hover around $1,202.6 per ounce.
Experts said money flowing into equities from gold in the US is one of the key factors behind the weakness in yellow metal prices. Earlier there was an apprehension that the US economy may remain weak for some time but now that there is some signs of strength, funds are flowing from gold to equities. In the domestic market, the rupee depreciation helped check some of the decline compared to the global market. It will continue until September and demand is expected to pick up around Diwali, say traders.
The government has also taken several steps to curb demand for the yellow metal, which has been blamed as one of the factors behind the yawning current account deficit. It has raised the import duty on gold to 8 per cent and the finance minister has urged people to shun the appetite for gold as an investment instrument.
