Smuggled gold, which is selling sharply lower than the spot market price, is also responsible for discounts not ending. Some consumers are selling high amounts of gold.
The price of gold is going up and has reached $ 1,500 per ounce even as investors globally are turning risk-averse.
The October futures price in India has touched Rs 37,800 per 10 gm.
Analysts expect the price to touch Rs 40,000 by the end of December.
In the market for physical gold in Mumbai on Wednesday, standard gold (995 purity) was trading at Rs 36,750-36,850 per 10 gm, nearly Rs 1,000 lower than in the futures market.
This is due to a discount of around Rs 550 per 10 gm in the spot market because of low demand.
Futures prices also are high owing to two months’ cost of carrying positions because the futures contracts’ next expiry is in October.
Due to futures prices remaining high, last month several traders purchased gold in the spot market and sold in the futures market.
This has resulted in 5.16 tonnes delivery of gold in MCX July futures, a record high.
Smuggled gold, which is selling sharply lower than the spot market price, is also responsible for discounts not ending.
Some consumers are selling high amounts of gold.
Gnanasekar Thiagarajan, director, Commtrendz Research, said: “The safe-haven demand, combined with a looming recession on the back of failed trade talks, is seeing a lot money moving into gold and silver.
"More retributory tariffs could push the world economy into a prolonged recession.”
He sees prices moving from $1,490 at present to $1,520-1,525 per ounce by the end of August.
This means according to him, on MCX futures price of Rs 38,500/39,000 can be expected.
By the end of December he expects $1,600-1,650 (MCX: 41,000-42,000).
Going by this, in the spot market, gold will cross Rs 40,000.
In the current financial year so far, gold has emerged as best return giving asset class with FY20 return at 16.5 per cent outshining all other major assets class.
No sign of other markets like equities giving returns better than gold in near futures, once investors are convinced that they will have to live with high gold prices, demand will also come and investors will still have something more to earn from gold.
Jay Prakash Gupta, director Moneylicious, a broking house said that, “with growing concerns of further escalation of US-China trade war, Next level for Gold can be $ 1520.
"In MCX Gold Futures price can touch 38800-39000 by October. If rupee weakens to 72 even 40000 rate won’t be a surprise.”
Globally investors are selling copper which is used as a proxy for economic growth and buying gold as they have turned risk-off.
Global financial investors see their opportunity cost of holding gold is falling following rate cut by US Federal Reserve.
Debajit Saha senior analyst, India & UAE, GFMS Refinitiv said that, “The situation at present is not conducive for doing business.
"The discount in the local market has surged to as high as $ 26/oz as there is hardly any demand in the market.
"Old gold jewellery supply has increased more than usual.
"With the gold price trading at a record high at present we believe it will take some time for consumers to become acclimatised with the new price level and demand may take some time to build momentum.”
Photograph: Jo Yong-Hak/Reuters