By Dilip Kumar Jha
MUMBAI: The price of gold jumped 0.68 per cent to hit a 33-month high on Wednesday due to investors' growing affinity for the yellow metal as a hedge against portfolio risk. Silver surged to its highest level since March 2014.
Standard gold jumped by 0.69 per cent on Wednesday to close at Rs 31,450 per 10 grams, a level not seen after October 28, 2013. In global markets, gold sustained its upsurge and surpassed $1,360 an oz for the second time in 2016, a level previously seen in early 2014. This has been gold's largest continuous gain since the European sovereign debt crisis in 2010 and 2011.
Gold has been one of the best-performing assets so far this year, outpacing all major benchmark indices and with comparable volatility to stocks. It has also outperformed crude oil, whose prices have plunged since the end of June.
"Investors are using gold to hedge portfolio risk as they add more stocks and low quality bonds to their asset mix. Gold has provided an alternative to balance the long-term risks of fiat currencies and ineffective monetary policies. The surge in gold prices was driven in part by weak demand during the 10-year Japanese Government Bond (JGB) auction on August 2, as investors have begun to question the effectiveness of unconventional monetary policies," said the latest report from the World Gold Council (WGC).
Amid rising uncertainty in global financial markets after Brexit and the recent slowdown in emerging market economies, BoJ announced an expansion of its quantitative easing policies. Specifically, BoJ almost doubled its purchases of exchange traded funds (ETFs) to an annual pace of JPY six trillion (about $60 billion) and, at the same time, doubled the size of its US-dollar lending program to $24 billion. Many investors, however, were disappointed, as the market was anticipating larger increases to asset purchases and/or further rate cuts.
"We believe that the weak JGB auction and ensuing sell-off in global sovereign bonds this week, suggests that investors may be losing confidence in government securities," said WGC report further.
In rupee term, gold price has jumped by 26 per cent or Rs 6435 per 10 grams following the movement in the international markets. Silver gained over 55 per cent this year to trade at Rs 48495 a kg.