Discounts on physical gold in India surged to over a month high in the wake of tepid demand and more imports. Physical gold dealers in the country offered discounts of up to $20 an ounce against official domestic rates in comparison to $2 premiums last week, Reuters reported.
Domestic prices of the yellow metal in India comprise 3 per cent GST and 12.5 per cent import. Meanwhile, the October gold futures fell 0.3 per cent to Rs 52,001 per 10 gram in the futures market on Friday.
Furthermore, the prices of the yellow metal mostly remained flat on a week-on-week comparison basis. However, gold prices are down by over Rs 4,000 per 10 gram from its highs of around Rs 56,200 it touched on August 7.
"A significant amount of gold was imported from Dubai last week and customs cleared that this week. But demand is not there because of volatile prices," said Chanda Venkatesh, managing director of bullion merchant CapsGold, told Reuters.
Gold rates have been on a crazy ride after clocking new highs earlier this month. According to the minutes released from the US central bank's last policy meeting earlier this week, policymakers were worried about the economy headed towards a highly uncertain trajectory and more fiscal support may be required, albeit they de-emphasised the need for targets and yield caps.
Notwithstanding the current volatility in gold prices, the yellow metal is up over 25 per cent so far this year. Central banks have unveiled huge stimulus and slashed interest rates to near zero levels to counter the economic toll from the COVID-19 crisis. These measures have boosted the safe haven appeal of gold, which is considered a perfect hedge against inflation and currency degradation.
At the same time, the US dollar has been volatile, making gold volatile as well. The US dollar index climbed 0.46 per cent on Friday amid strong US economic data that also triggered rally in equity markets. Gold remains vulnerable to fluctuations in the US dollar and US monetary policy expectations.
Meanwhile, many analysts have a bullish outlook on gold for mid to long term duration, owing to the ultra loose monetary policy followed by the central banks.
Furthermore, more printing of money by apex banks amid near-zero interest rates to alleviate the economic implications from the pandemic have boosted the yellow metal's appeal as a hedge against inflation and currency debasement.