image source, Getty Images
Article information
Gold and silver prices fell after the announcement of a temporary ceasefire agreement between Iran and the United States.
Crude oil, gold and silver prices have now fallen significantly after peaking during the blockade of the Strait of Hormuz. Gold prices in the international market hit a seven-month low on Wednesday. Likewise, the price of silver has also fallen by half compared to January last year. Currently, prices for these two metals are at their lowest levels since November last year.
On Thursday, 10 grams of 99.9% pure gold was priced at Rs 1.40 lakh and silver priced at Rs 2.15 lakh per kg, according to the Indian Bullion and Jewelers Association website.
By the end of January, gold prices reached Rs 2 lakh per 10 grams. Similarly, silver price reached Rs 4.04 lakh per kg. Since then, their prices have steadily declined.
Read on
image source, Getty Images
signature, By the end of January, gold and silver prices reached new highs.
Gold prices fell below $4,000 an ounce (28.35 grams) in international markets on Wednesday, hitting a seven-month low, according to Reuters. On Wednesday alone, gold fell 3.3 percent.
At the same time, the value of the US dollar also strengthened. This makes buying gold in any currency other than the dollar expensive.
Storing only gold does not provide any income or interest. Therefore, when interest rates rise, the importance of gold decreases.
Last January, gold prices reached a new all-time high of $5,594 per ounce. Gold prices have fallen to $1,600 an ounce compared to that time.
The BBC spoke to jewelery industry experts and traders to understand the situation.
What affects the price of gold and silver?
image source, Getty Images
signature, India has imposed high tariffs to curb gold imports. This affected its consumption.
Rising interest rates in the US are having a major impact on these rare metals.
Gold prices have fallen by Rs 6,000 per 10 grams on the Commodity Exchange in the last two days. Silver also fell to Rs 15,500.
Speaking to the BBC, Chomil Gandhi, commodities analyst at HDFC Securities, said: “The US Federal Reserve had a meeting last week where new chairman Kevin Warsh took a tough stance on interest rates.” He said.
“Inflation in the United States has been high for the past 5 years. Therefore, the main goal of a central bank is to keep inflation under control. So the US central bank may raise interest rates once or twice this year. As there are signs of rising interest rates, investments in gold are being withdrawn and invested in dollars.” He said.
image source, Somil Gandhi
signature, Commodity market analyst Shomil Gandhi
He said the dollar index is currently at a 13-month high, which has led to sell-offs in gold, silver and all base metals.
The US Federal Reserve is expected to raise interest rates in September and December depending on market conditions.
Shomil Gandhi notes that the price of silver, like gold, has fallen significantly from its peak in January.
“A 60-day ceasefire has been agreed upon between the US and Iran, but it is difficult to say how long it will last. Thus, gold and crude oil prices may rise or fall depending on the news headlines.” He said.
What about jewelers?
image source, Getty Images
Hemant Satwara of Ahmedabad Choksi Mahajan (Jewelry Organization) explained whether gold sales in India will increase due to the fall in gold prices in the international market.
He said that although the prices of gold and silver have fallen, there is no demand among buyers to buy them.
“In the current conditions, we can say that the gold and silver market is stagnant. Schools have opened so people have spent available money on tuition fees, books etc. Hence, retail sales of gold are low,” he said.
In addition, the business was hit hard by rising prices for gold and silver and increasing import duties on them.
Hemant Satwara, who says gold and silver prices have fallen due to the dollar for three days, said: “Gold and silver prices will fall if the US Federal Reserve raises interest rates, while rare metal prices will rise if interest rates fall.” He said.
Why is interest in buying gold decreasing even though its price is falling?
image source, Getty Images
According to Hemant Satwara, the price of 10 grams of gold in Ahmedabad on June 25 was Rs 1.44 lakh and a kilogram of silver was Rs 2.19 lakh.
He also mentioned that 3% GST will be charged upon purchase by the buyer.
He continued, “Currently, there is no order in the gold and silver market. Consumption has come down significantly after Prime Minister Narendra Modi asked people to refrain from buying gold jewellery. In such a situation, even small jewelery manufacturers are left without work.” He said.
Hemant Satwara, who says that usually when the price of gold falls, business in the market increases, this time there is not enough business. He also said that when other industries are experiencing a downturn, the jewelry sector cannot be an exception.
The festive season begins in August and lasts until Diwali. Hemant Satwara believes that then the business can grow. He also notes that in the current circumstances no advance directives have been issued.
Why did the price of silver fall?
image source, Bloomberg via Getty Images
signature, Experts believe that prices of these two metals are likely to remain under pressure for some time.
The rise in silver prices last year took everyone by surprise. However, it has now decreased significantly.
One reason is that the US Federal Reserve will raise interest rates. Additionally, as tensions between the US and Iran have eased, the incremental return (risk premium) on silver has also fallen.
Unlike gold, silver does not provide fixed interest or income. US bond yields are high by comparison. So investors moved from silver to bonds in search of additional returns.
– This is a collective publication of BBC news.