Gold hits two-month high, demand falls 3% due to GST

Gold price hit a two-month high on a weak dollar, as investors' renewed safe-haven buying interest erupted out of geopolitical tensions between North Korea and the United States.

Standard gold in the popular Zaveri Bazaar in Mumbai jumped by 0.5 per cent or Rs 140 to close at Rs 29,210 per 10 grams on Friday gaining 2.5 per cent during the week. Rising gold prices have driven buyers out of the physical markets who preferred to "wait and watch" before placing new orders.

Gold prices in India followed broadly global markets with its price was up by 0.7 per cent at $1,286.07 an oz in London, the metal's highest level since June 8 as investors sought safe haven refuge in the yellow metal amid "war of words" and "threat of attack" between North Korea and the United States. 

Physical demand for gold has been lower due to the levy of 3 per cent GST in addition to 10 per cent of import duty. Gold has become costlier with the implementation of GST being the overall levy higher by 0.75 per cent under the GST regime.

"Physical demand has declined tremendously since the implementation of the GST effective July 1. With the festive season coming in, physical demand is expected to rebound in near term," said Ketan Shroff, Director, India Bullion and Jewellers Association (IBJA), the premier industry body of India's leading bullion dealers and jewellers.

Spot gold price rose 1.3 per cent on Thursday, the biggest daily gain since mid-May. For delivery in December, the US gold futures climbed by 1 per cent to $1,291.80 an oz.

"Geopolitical tensions between the US and North Korea remains high which will drive gold prices upwards. But, investors should trade in gold with caution," said Prathamesh Mallya, Chief Analyst (Non-Agro Commodities & Currency), Angel Commodities Broking.

Meanwhile, gold prices traded higher by 0.4 per cent today at $1,287 an oz on Friday translating 0.2 per cent increase in on the Multi Commodity Exchange (MCX) here with the contract for delivery in near month jumped to Rs 29,230 per 10 grams. US and North Korea tensions continue to be the centre stage for safe haven play in gold prices while global equities continue to fall for the four consecutive sessions creating the safety net for precious metals pack, said Mallya.

Investors' risk appetite has changed from equities to precious metal which was evident from the fifth consecutive day's decline of the benchmark Sensex and Nifty in India on Friday.

Fearing a dollar pullback, the rupee depreciated by nearly 1 per cent over the week to close on Friday at Rs 64.14 against the dollar. WTI oil prices are trading lower by 0.5 per cent at $48.34 a barrel while MCX oil prices are trading lower by 0.64 per cent at Rs 3,108 per barrel. Oil prices are falling today after the International Energy Agency said market balancing will take time despite strong demand growth for oil. Silver also followed the move and rose in tandem with gold.

While announcing the Gold Demand Trend (GDT) early this month, the World Gold Council (WGC) estimated India's gold demand to remain range bound with an upward bias. Even with the low range of 650-750 tonnes, India's gold demand has to be over 350 tonnes in the second half from 298.4 tonnes in the first half of 2017 calendar year, Somasundaram PR, Managing Director of WGC had said earlier.