Over the last several days, there have been sharp ups and downs in the gold price in the local bullion market, which has created a bit of a dilemma for customers, jewellers, and small investors, as to what decision to make. The ever changing rates during the day have almost made it impossible for people to figure out if it is better to buy now or if they should hold on for a while. Traders point out that the present scenario is a clear indication of a period of highly volatile gold prices, where prices are very sensitive and thus changing dramatically, even with the slightest global or financial development.
Traders at the city’s trading stands noted that despite persistent interest in the metal, the actual gold buying has subdued as the consumers have been perplexed by the fluctuating market. Basically, people are keeping their eyes fixed on the gold bars’ price and waiting for more certain signals before they can commit to any heavy spending.
Gold was always there as a safe and reliable store of value for a long time. In most cases, people consider buying it when times are tough and uncertain. Nevertheless, when the changes in the price come so fast and so frequently over a very short period, even those who buy the metal for the long run start holding back. That is precisely the situation in the market right now.
The question under discussion is, why do gold prices keep changing so much?
The foremost factor responsible for the price swings of gold at present is the overbearing impact of global markets. The price of local gold is strongly correlated with the international gold prices so tightly that, as a rule, when global prices go up or down, there is a direct corresponding domestic price adjustment.
According to the traders, the international economic scene continues to be very unpredictable. Globally, investors are paying close attention to any news on inflation, economic growth and interest rates. News regarding these issues has a direct impact on the price of gold.
When investors become worried about the economic situation, they generally transfer their funds to what they consider to be safer assets, like gold. This results in an increase in gold prices. However, if the market starts to anticipate higher interest rates, gold loses its appeal as it does not offer any yield or interest. Thus, prices get depressed. Most of the time, these two opposing forces are at work simultaneously, and the price of gold exhibits quick and frequent swings.
Role of currency movement
Another significant factor which leads to gold price volatility is the change in the value of the dollar. Since gold is a dollar-denominated commodity, when the dollar strengthens, gold will typically cost more to buyers using other currencies. This can dampen demand and thus result in the reduction of prices.
Conversely, a weaker dollar makes gold more appealing to foreign buyers, which in turn leads to a rise in gold prices. Even minute variations in the currency market are capable of impacting gold prices in the local market. According to the traders, currency fluctuations have contributed to uncertainty and have led to a greater number of price swings during the day over the last few sessions.
Global uncertainty already captured gold’s theme
Geopolitical tensions, trade concerns and weak growth signals from some major economies have also kept gold in focus. They consider gold as a risk protection instrument. This keeps supporting prices from below.
Nevertheless this support is insufficiently strong to constitute a barrier against sudden falls when global economic data show stronger growth or when financial markets become more confident . Thus, gold prices keep switching from one short cycle to another rather than moving along a stable trend.
Impact on retail buyers
Retail buyers have been directly impacted by the continuous gold price volatility. According to the jewellers’ report, the customers are in the stores, but plenty of them are certainly postponing their purchases. The buyers inquire about the recent price changes and what the future might bring.
Some store owners have mentioned that customers get extremely careful especially when buying heavy jewellery or investment bars. Small pieces of jewellery and coins still have some demand, yet even buyers in these cases are trying to get the best deals and time the purchases correctly.
Customers have a fear of price drops after the purchase. This has made the sales slow down and fewer spontaneous purchases happen.
How jewellers are responding
Jewellers are regrouping and adjusting their business operations to the market changes. To limit the exposure of their holdings to the risk of sudden price falls, some retailers decide to restrict the size of their inventory. To get the customers feeling assured, some stores offer flexible exchange and buy-back schemes.
Jewellery manufacturers are also being cautious while planning their production especially for those pieces that will require a lot of gold.
With the cost of raw materials constantly changing, it is becoming more difficult to price the finished products.
The industry representatives pointed out that although price volatility is not something new, the rate at which prices are changing has gone up significantly in recent weeks thus it has become very difficult for businesses to plan.
Mixed investment demand trend
There is a mixed investment demand trend for gold. A certain section of investors is still buying gold as a long-term store of value. They are of the opinion that short-term price fluctuations do not alter the role of gold as a hedging asset.
Simultaneously, a good number of small investors are deciding to stay away. The financial advisors also state that, in the case of uncertain price situations, short term trading becomes quite risky. Without an apparent trend to follow, investors may buy at higher levels and sell during sudden dips.
Consequently, some investors have now resorted to the strategy of spreading their purchases over a period instead of acquiring all at once. This way, they can minimize the loss caused by sudden price changes.
Gross effect on the upcoming buying season
The forthcoming festival and wedding season are expected to be a major support for the physical demand. In fact, it is a period when there is traditionally a very strong buying interest in gold jewellery.
Nonetheless, the jewellers pointed out that if the gold price continues to be so volatile, there would be no strong recovery in demand. In addition, customers would rather wait for stability before making a big purchase.
In their opinion, retailers are still optimistic that if prices become more stable, consumer confidence will get a boost and consequently buying activity will increase.
What traders are watching now
Traders and analysts are very focused on key global economic data and central bank communications. A change in the tone about future interest rate decisions could be accompanied by a fresh price movement.
Economic indicators on inflation and employment in the major economies are significant as well. These data points have an impact on how investors perceive future growth and monetary policy.
In the current scenario, even an unexpected announcement can lead to a very sharp change in gold prices within a few minutes.
Short term outlook is still unclear
The most of the market participants are betting that gold price volatility will probably be a feature of the near term market. As long as the global interest rate direction and economic stability puzzle remain unsolved, gold will continue to be sensitive to international developments.
Traders remarked that the market is currently more globally sentiment-driven rather than physically demand-driven. This makes prices less predictable and more reactive to news flow.
Locally, demand is not sufficient in itself to decide the price direction. On the contrary, foreign market movements keep the domestic market on the right track.
Advice for buyers in a volatile market
People working in the field suggest that buyers should completely refrain from making decisions on the basis of daily price changes. Rather, they ought to concentrate on their long-term needs and budgets.
When it comes to individuals who are buying jewelry for their own use, hardly any thing out of the perfect market timing matters as much as planning the purchases financially comfortably.
For investors, specialists advise them to stagger their purchases over different dates instead of investing large sums during uncertain times. It helps them to lower the risk of buying at a short-term high.
