Indian gold and silver prices on Sunday held steady ground. Soaring inflation has been the major driving force for yellow metal so far this year, while the development in the Russia-Ukraine conflict extended the rally in these commodities furthermore since late February. Gold and silver rates in India were unchanged from yesterday, however, inflationary pressure continues to be the big jewel for uptick in safe havens going forward. Notably, gold stayed above the $1,950 per ounce level after data showed that US home sales stayed weak in February 2022. There is a fresh worry among investors in terms of economic growth which is likely to face the brunt of the stagflation scenario in the near term.
In Mumbai, 10 gram gold in 24 carat is priced at ₹52,590 unchanged from the previous day. While the 100 gram in 24-carat gold is available at Rs5,25,900. 10 gram in 22 carat is available at Rs48,200 and that of 100 gram in the same carat is priced at ₹4,82,000.
A 1 KG of silver is priced at ₹68,900 same as yesterday in Mumbai. While 100 gram and 10 gram silver is available at ₹6,890 and ₹689 respectively.
Last week, on Friday, at MCX, both gold and silver futures closed on a bearish tone. These commodities which are seen as a safe haven for hedging funds during markets risks, have pulled back slightly from their record gains earlier in the week. Gold futures maturing April 05, 2022, settled at 51888 down by Rs190 or 0.36%. While silver futures maturing April 29, 2022, ended at 69050 lower by ₹349 or 0.50%. However, gold futures did cross ₹52,100 mark and silver even neared to ₹69650 level during the last trading day before correcting.
The Moscow and Ukraine conflict has taken a new turn.
As per BBC News, Russia says it will focus its invasion of Ukraine on "liberating" the east, signaling a possible shift in its strategy. The defence ministry said that the initial aims of the war were complete, and that Russia had reduced the combat capacity of Ukraine. Further, the report said that Russia's invasion appeared aimed at swiftly capturing major cities and toppling the government.
Meanwhile, Ukraine's President, Volodymyr Zelensky has once again called on Moscow for peace talks. Although, the Ukraine troops have continued to defend the land and in the latest development a counter-offensive attack was launched in Kherson which is the country's biggest port.
Majority of experts expect the gold price to rise further as surging crude oil prices escalate fears over rising inflation and slowdown in global economic growth. This would lead to investors opting for inflation-hedged gold.
ICRA in its latest research note said, "The armed conflict between Russia and Ukraine has led to crude oil prices spiking. A few countries including the United States have banned Russian oil and gas imports while some others are planning to phase these out over a period of time. However, prices have jumped as traders and refiners are avoiding Russian oil due to which Russian exports have already fallen by about a third," adding," the possibility of an Iranian nuclear deal could lower oil prices, but due to Iran being a much smaller oil producer it cannot replace the loss of Russian oil."
As per ICRA's note, while the increasing oil prices add to the fiscal burden for the country, it is a positive for the upstream oil companies. Though Indian imports from Russia and Ukraine are less than 2%, major commodities which are imported from the other countries include oil, gold, metals, and chemicals.
Rising crude prices spark the fear of a further rise in inflation which could lead to aggressive monetary policy tightening. In the US, inflation is at a four-decade high.
Johan Palmberg, Senior Quantitative Analyst, and Krishan Gopaul, Senior Analysts (EMEA) at World Gold Council in their note dated March 25 said, of the four business cycle phases since 1973, stagflation is the one that is most supportive for gold and conversely the worst for risk assets.
According to the World Gold Council analysts, gold’s strong performance year-to-date might be following its historical track record in reflationary environments, lagging commodities initially but eventually catching up. The Ukraine crisis has undoubtedly focused more attention on gold’s hedging credentials. Whatever the motivation for the current widespread interest in gold, it is doing exactly what an effective diversifier and portfolio hedge do: providing protection when other assets are faltering.
The duo at World Gold Council further highlighted that there are strong tailwinds for gold at the moment: equity weakness, geopolitical risk, soaring inflation. The weakness in bonds is adding further support, and we are still in a reflationary environment. Should this morph into something more stagflationary – the risk of which is rising – then history suggests it could be even better for gold.
When asked about staglation risk, Christine Lagarde, President of the European Central Bank in an interview on Satursday said, "So far, incoming data don’t point to a material risk of stagflation. The euro area is back to its pre-crisis level of output, growth continues and the labour market remains strong. In the short term, the surge in inflation is due to factors related to the pandemic, stoked more recently by disruptions to global energy prices related to the war."
At present, safe havens are attractive due to raging inflation and intensity in the Russian-Ukraine war and as long as the two factors continue to dominate markets sentiment - a scenario for a further uptick in gold price stays.
