Gold prices soften on hopes of US-China trade deal

Representative image.

In what could be good news for the thousands of gold buyers in the country, the prices of the precious metal have been softening in the global markets, on the back of hopes of a trade deal between the US and China.

In the international markets, the prices of gold have dropped 5.47% to $1,475 (about Rs 1.04 lakh) per ounce since September 4, when it had peaked to $1,560.4 (about Rs 1.12 lakh). In rupee terms, owing to the interest rate differential, the drop is even higher -- of 7.2%.

The international prices of the gold determine the base price for the precious metal in India -- as India is the price taker when it comes to gold trading. However, the prices in different cities vary with each other in India, primarily owing to the different premiums attached to the metal in India.

The prices of gold have been trading at their lowest levels in three months, as they are trading in the range of Rs 38,800-Rs 38,900 per 10 gram in the Mumbai market for the past three trading days.  In the Bengaluru's local gold market, the precious metal has been trading in the range of Rs 38,800 - Rs 39,050 in the past three trading sessions.

"The recent softening of gold prices can be attributed largely to the optimism of a trade deal between the US and China and positive economic data from the US which lowered expectations of further rate cuts by the Federal Reserve," said Kavita Chacko, Senior Economist at the CARE Rating.

Investors use gold as a hedge and against the uncertainties, and as soon as the market optimism goes up, the investors start parking their monies in the riskier asset classes such as equity.

During the same period of little of three months, the Composite Index of NASDAQ has shot up by 8.5% -- to 8,654.05 points from 7,976.88 points -- clearly showing the more and more movement of funds from safer assets to riskier assets in the global markets.

Also, the US Federal Reserve has been going for the rate cuts, which is leading to lesser demand for US dollars globally. A weaker greenback makes dollar-denominated gold cheaper for holders of other currencies.

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