The rally in the equity market is taking away the sheen from gold. Even though the yellow metal has become slightly cheaper, prompting some wedding-related jewellery purchases, investors are cautious to buy gold as they expect the strengthening local currency to keep any price gains in check.
“In the physical market, investors are not purchasing gold as the government has capped cash transactions at Rs 2 lakh. In the futures market, investors are not showing much interest on account of the strong rupee which is keeping gold prices under control in comparison to the international prices,” said Prithviraj Kothari, managing director, RiddiSiddhi Bullion.
In an ET poll, forex traders and analysts suggested the rupee to rise to 63 against the dollar in the next one month. India imports most of the gold it consumes and the metal’s price moves in tandem with international rates. A stronger rupee makes imports cheaper.
Gold for June contract on the MCX was trading at Rs 28,812 per 10 gm on Tuesday evening, after opening stronger at Rs 28,840 against Monday’s closing of Rs 28,739. The rupee was trading around 64.48 against the dollar. Jewellers said the recent decline in gold price has created some interest among consumers who strictly want to buy jewellery for wedding requirement.
“But the rally in equities is keeping away investors from gold,” said Himanshu Gupta, chief market strategist at Karvy Commodities.
The equity market has gained strength of late, backed by a strong rupee and increasing investment by foreign institutions.
Analysts are bullish about the equity market. “Though there was mild profit-booking in the last few trading sessions, we think it was largely due to geopolitical issues which emerged over the last week.
The Indian rupee has been strengthening and this certainly gives a positive sense of direction for the improvement in the macroeconomic indicators for the country and can result in the incrementally higher inflows from foreign investors in the coming months,” said Siddharth Purohit, senior equity research analyst at Angel Broking.