Indian Gold Prices Rise 4.1% in May Despite Decline in Global Prices: World Gold Council

New Delhi: According to the World Gold Council’s latest Gold Market Commentary report, gold prices in India increased by 4.1 percent in May, while global gold prices fell by 1.4 percent during the month.

The report stated that gold completed May at $4,546 per ounce worldwide, and prices recorded a decline in most major currencies. However, India and Türkiye were among the few markets to post gains during the month. In its report titled ‘Gold Market Commentary: Rise of the Volcano’, the World Gold Council said, “Gold fell 1% in May, ending the month at US$4,546/oz, marginally lower across most major currencies. India and Turkey saw monthly gains due to policy changes and local currency weakness.” According to the report, gold prices in India increased by 4.1 percent in May and have increased by 4.1 percent since the beginning of the year. The return in the domestic market was 17.6 percent as of May 29.

The rise in domestic gold prices comes amid rising geopolitical tensions in West Asia and increased volatility in bullion markets. In recent weeks, Prime Minister Narendra Modi has also urged citizens not to buy gold, underlining the government’s efforts to maintain market stability amid the ongoing regional conflict.

The World Gold Council said that despite rising market expectations of a potential interest rate hike by the US Federal Reserve later this year, demand from major physical gold-consuming markets such as India could continue to provide support for the precious metal. “Demand from China, India and central banks is structurally less sensitive to US interest rates and could provide support beyond the current recession,” the report said.

The comment comes at a time when financial markets are shifting from expectations of a US interest rate cut to the possibility of a rate hike amid persistent inflationary pressures. “Following a somewhat contentious US rate-cut cycle that begins in 2024, the market has turned to the possibility of strong rate hikes through the end of the year and beyond, as a solid economy faces pass-through inflation pressures,” the report said. The statement was included.

The World Gold Council argued that future interest rate increases may not necessarily be negative for gold prices. The report stated that historical data shows that gold generally performs better than expected following the Fed’s tightening moves. “Gold surprised positively in more than 50 percent of the hikes. The average one-month (21-day) return following the hikes – adjusted for the long-term average 21-day return of 0.84 percent – was positive,” he said.

The council also warned that gold faces challenges in the near term. The report stated that some physical markets showed signs of weakening demand and global gold ETF flows remained weak in May. “Some physical markets appear to have softened, with anecdotal evidence of discounts in India and South Korea and some sales in Japan,” the report said.

Weak demand trends in India come against the backdrop of Prime Minister Narendra Modi’s appeal last month asking citizens to postpone gold purchases due to supply chain disruptions resulting from the West Asian crisis. Addressing the nation, the Prime Minister noted that a significant portion of India’s foreign exchange is spent on gold imports and appealed to consumers to postpone purchases until the situation normalises, as part of broader efforts to reduce pressure on imports amid ongoing geopolitical uncertainty.

The report also flagged energy markets as a significant risk to gold in the near term, warning that a sharp rise in oil prices could strengthen the US dollar and put pressure on gold prices before long-term supporting factors emerge. The World Gold Council said, “The biggest short-term risk may come from energy markets.”