The sudden spurt in Covid-19 cases following the second wave in India has created a conducive environment for gold prices to rise, which have increased by more than Rs 2,000 per 10 grams in the last 10 days and are expected to remain at this elevated level till ‘normalcy’ on the recurrent pandemic front returns.

Prices closed with a gain of Rs 283 per 10 grams at Rs 46,702 while silver steadily climbed Rs 983 per kg to settle at Rs 67,111 on the commodity exchange MCX.

According to global rating agency Moody’s, the second wave of coronavirus infections is credit-negative and poses threat to economic recovery in India. This presents risk to growth, forecast as the reimposition of virus-management measures to curb economic activity and dampen the market as well as consumer sentiment.

Gold prices in international markets, however, are on sliding mode, since in most western markets, respective governments had taken control over the pandemic and successfully managed to move ahead with vaccination programme. Prospects of normalcy returning soon are brightening with every passing day, and that has resulted in gold prices moving south! London gold, which was trading at $1,752 per ounce last week, was newly-quoted at $ 1,733 per ounce on Tuesday.

As a result, Indian gold prices should also come down but are unfortunately showing an up-trend. There are different reasons for this reverse trend in prices.

Prithvi Raj Kothari, Managing Director of Riddhi Siddhi Bullions said, “As Covid cases are increasing, the Indian economy is getting impacted, and due to that, the equity market is going down. And because of this, the Indian Rupee (INR) has depreciated. The INR has weakened from 72.50 to 75.10 against the US Dollar (USD). The value of gold in the international market hasn't gone so down in comparison”.

Currently the market is going at Rs. 47,600 approximately and the spot price is Rs. 47,200. So, there is a drop on the demand due to Covid as it has once again begun to spread its wings again in every state. “If a situation similar to the lockdown is reinstated, then the price of gold will increase and INR will weaken further” Kothari said.

In 2020, when Covid-related uncertainties were at its peak, gold prices in India reached their highest of Rs 57,100 in August. Following the price weakness in the first three months of the current year, prices have recovered more than 4 per cent in April, as safe-haven demand has returned due to rising Covid-19 cases in India and across the globe.

Ketan Kothari, Director, Augmont, a digital gold provider said, “The reversal of Dollar Index and US 10-year treasury yields had in large part supporting gold. When prices traded around Rs 45000/10 gm psychological mark in March, we saw demand reviving through physical retail gold buying and bottom fishing. This got reflected in trade figures, where India imported 160 tons of yellow metal in March, rising to two-year high levels”.

As rural areas of the country will witness ‘wedding season’ during May-June, and festivities like Gudhi Padwa and Akshaya Tritiya in the next few weeks, there is a possibility of gold prices gathering further momentum on the back of retail demand, and are expected to head north in the second quarter of 2021.