Gold price may get a boost from traditions around Indian nuptials
The price of gold has been under pressure ever since the US Federal Reserve ratcheted up its fight against inflation. With India’s wedding season on the horizon, though, it is about to get a boost.
India is the world’s second-largest consumer of the precious metal behind China and weddings account for about half of the country’s annual gold demand, according to the London-based World Gold Council, an industry organisation.
In India, gold plays a central role in weddings and religious festivities. Gifting gold jewellery and wearing gold ornaments for celebrations are deeply embedded in the country’s culture. The shiny metal is often seen as a symbol of wealth and status, regardless of faith or ethnicity.
Jewellery demand
Demand for jewellery is still one of the most important factors in shaping the global gold price. More recently, though, it has been overshadowed by speculation about how far a rally in the US dollar is going to go and how much higher US interest rates are going to rise. Traders will need to monitor these economic events closely when considering trading CFDs on gold, as both could affect the price.
Gold prices soared earlier this year, peaking at USD 2,034 per ounce in March, as a pick-up in inflation worldwide and Russia’s invasion of Ukraine prompted investors to buy traditional safe-haven assets.
Gold prices have slumped about 18% since then as the US Federal Reserve began an aggressive rate-hiking campaign to fight the fastest inflation more than 40 years.
Source: ThinkTrader
The spot price of gold (XAU/USD), year-to-date chart
“Gold struggles when rates are going up and loves it when inflation is out of control,” Carl Capolingua, a Melbourne-based market analyst at ThinkMarkets, said. “Certainly, rates are going up, but inflation expectations are largely in check. The market believes the Fed is committed to fighting inflation.”
Relentless Fed
The Fed has raised US interest rates in four large steps to between 3.75% and 4.00% by early November. Its target rate was close to zero at the beginning of the year. It is predicted to lift them again in December and then again in early 2023.
Higher interest rates are driving up safe-haven demand for the dollar. This makes gold, which is a traditional store of value but has no yield, less desirable in comparison.
The interest-rate increases helped push the US dollar index (DXY) to a two-decade high. This measures the dollar’s strength against a basket of its major counterparts. As gold contracts are priced in US dollars, the price of gold has an inverse relationship with the US currency.
“As the US dollar has appreciated, ironically on the back of those rising US rates, gold has struggled further,” Capolingua said. “If any of the parts of the puzzle change – for example rate rise expectations shift back to neutral or easing, triggering some US dollar weakness, or inflation expectations become unhinged – then gold can rally.”
Temporary relief, though, may come from elsewhere. The wedding season in India gets into gear after Diwali and runs through March. With India alone accounting for more than a quarter of global jewellery consumption, the impact is bound to lend support to the gold price in coming months.
Have a view on the gold price? Start trading gold contracts for difference (CFDs) on the award-winning ThinkTrader platform. Benefit from razor-thin spreads, ultra-fast execution and going long or short on gold.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
Learn and earn more today.
Visit our Education Centre