Zee Media Bureau
Amid a weakening global trend, gold prices have softened up to a level of Rs 25,000 per ten grams at India's major domestic markets. A weak rupee has however kept local gold prices relatively strong compared with a slump in US dollar-denominated gold.
Also Read: Gold rate on December 10: Latest updates
Globally, the yellow metal has already lost over 9 percent of its value this year and is on track for its third year of losses. The metal slid to USD 1,045.85, its lowest since February 2010, last week, when the dollar spiked to its highest level in 12-1/2 years following Fed chair Janet Yellen`s hint at a US rate rise this month.
Here are the five key reasons why gold prices are falling:
Worry over expected US Fed rate hike
US central bank is expected to raise rates for the first time in nearly a decade at its next policy meeting on Dec. 15-16. Higher rates should dent demand for non-interest-paying gold, which has already lost over 9 percent of its value this year and is on track for its third year of losses.
Stronger US dollar
The Us dollar is continuously moving upwards amid growing market views that the Fed would hike interest rates for the first time in nearly a decade later this month. Higher rates tend to drag on non-interest-paying gold by increasing the opportunity cost of holding it, while boosting the dollar.
The yellow metal slid to USD 1,045.85, its lowest since February 2010, last week, when the dollar spiked to its highest level in 12-1/2 years following Fed chair Janet Yellen`s hint at a US rate rise this month.
A stronger dollar makes greenback-denominated gold dearer for holders of other currencies. That tends to dent demand and, in turn, pull prices lower.
Falling oil prices
A slide in the oil price to a seven-year low, along with a dip in the broader commodity markets, added pressure to gold. Weakness in oil could trigger fears of deflation, a bearish factor for gold, which is often used as a hedge against oil-led inflation.
Low physical demand
In the physical markets, gold premiums in India fell this week as a modest rebound in prices from multi-year lows prompted consumers to postpone purchases.
As per media reports, India's gold buying in the key December quarter is likely to fall to the lowest level in eight years, hurt by poor investment demand and back-to-back droughts that have slashed earnings for the country's millions of farmers.
A weak rupee has also kept local gold prices relatively strong compared with a slump in US dollar-denominated gold, further denting demand, while investment buying has stalled as investors see little chance of a quick price recovery.
Low investment demand
Investors have been cutting back on their gold exposure. Assets in SPDR Gold Trust, the top bullion exchange traded fund, are at their lowest since September 2008.
