Driven by increased demand, international gold prices are at record highs, surging over 30 per cent in the past two years. Price increases have been much sharper in Indian markets. The recent price movement contradicts an important theoretical characteristic associated with gold. Since gold does not generate any cash flow, the opportunity cost of holding it is low when interest rates are low. However, gold prices have increased significantly even as global interest rates are at a multi-decade high. Officials at the US Federal Reserve are signalling that interest rates may remain higher for longer. Prices have also risen despite
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