●Why are Gold Prices increasing during Pandemic
•Recently, the gold prices crossed Rs. 50,000 per 10 grams after nine years in India
•Whenever stock markets, real estate and bonds fall across the world, investors turn to gold to park their funds. It is considered as a safe haven for investors during periods of uncertainties.
[As gold is highly liquid and carries no default risk. It is scarce which has historically preserved its value over time]
•Global uncertainties triggered by Covid-19 pandemic, weak dollar, low-interest rates environment and stimulus programmes have increased the demand for gold.
•Rising virus cases and USA-China tensions have also led to increase in the gold price.
•India is the world’s second-largest gold consumer after China
•Historically, gold has generated long-term positive returns.
•The price of gold has increased by an average 14.1% per annum since 1973 after Bretton Woods collapsed and the gold standard system of pegging the currency to gold ended.
•Bretton Woods System was a fixed exchange rate system, under which gold was the basis for the US dollar and other currencies were pegged to the US dollar’s value.
•Gold has surged nearly 40% in the last one year while the Sensex (benchmark index of Bombay Stock Exchange) showed a loss of 0.41% in the same period.
India’s Gold Market:
•According to the World Gold Council (WGC), households in India may have around 24,000-25,000 tonnes of gold. Various temples across the country also hold sizable gold holdings.
•The Reserve Bank of India bought 40.45 tonnes of gold in the financial year 2019-20, taking its total holdings of the gold to 653.01 tonnes.
•It is a part of RBI’s forex reserves.
India’s gold demand in 2019 was 690.4 tonnes compared to 760.4 tonnes in 2018.
•The demand has reduced in 2020 due to lockdown caused by pandemic