Why have gold prices rallied sharply in the last few days? Is it about Dussehra demand?

Gold prices in India have scaled by over Rs.2,000 per 10 grams to a level of Rs.47,902 ahead of the Dussehra celebrations. However, the real reasons are also the spike in the global price of gold. Global gold rallied sharply on the back of softer US dollar and a spike in bond yields, that have made gold more alluring due to the uncertainty. While markets are expecting an early rate hike by the Fed, markets are preparing by buying the safe haven of gold.

In fact, gold has its best week in more than five months. The yellow metal is once again the centre of attention with the looming Federal Reserve taper. The hawkishness of the Fed is likely create some tumult in global markets and among asset classes investors find gold as the safest haven to park funds. In the global spot gold market, the price has already crossed a one-month high of $1,800 per troy ounce. Gains were seen in spot silver too.

While the domestic Dussehra and Diwali demand is a factor, it has less of an impact on the gold prices, except as a marginal impact or as an accentuation of the impact. The real impact is coming from fears of global uncertainty. With the Chinese Evergrande crisis threatening to blow out, a spike in global inflation and global uncertainty created by divergent monetary policies are all translating into a gold rally. This is set to continue till the un certainty stays.