Gold prices are hovering at record highs globally. In India, pure gold is today quoting at Rs 5,400 a gm and ornament gold at Rs 5,216 at Mumbai bullion market.
On COMEX (Commodity Exchange) in the US, the December gold contract hit $2,009.50 a troy ounce last night (3 August) before dropping to $1,991 as the US dollar gained a tad.
A major reason for gold zooming to record high this year is due to the weakness of the US dollar. The yellow metal has gained nearly 37.50 per cent this year.
On the other hand, the US dollar index, in which the greenback is weighed against a basket of other currencies, was ruling at 93.37. The index has dropped 4.36 per cent this year with the fall being a sharp 6.35 per cent in the last three months.
Gold has also gained as people have sought safe haven in it in view of the economy being affected by the novel coronavirus pandemic. With a question mark hanging over the performance of the equities market, investors have decided that it is wise to put their money in gold.
Be that as it may, there is another issue with the rise in gold prices and falling dollar. Gary Wagner of goldforecast.com says that the dollar’s weakness has aided the recent bull run of the yellow metal to a record high.
Horizon ETF portfolio manager Nick Picquard was quoted by Kitco News as saying that gold’s rally was telling investors that the financial system with the dollar as the reserve currency needs some changes.
One of the discussions that has been hogging limelight recently in the yellow metal’s golden run is how Russia and China have successfully mounted a challenge to the dominance of the greenback or Benjamin, as the $100 bill is called.
Russia and China have pulled down the share of the US dollar in trade between them to below 50 per cent during January-March this year. Four years ago, Benjamin’s share was 90 per cent of their trade.
Russian daily Izvestia reported that the share of the greenback dropped to 46 per cent in the first quarter this year from 75 per cent in 2018 in trade between China and Russia. The Euro, Chinese yuan and the Russian rouble made up 30 per cent, 17 per cent and 7 per cent respectively, of the remaining 54 per cent.
Trade experts see the China-US trade dispute running since 2018 as the main reason for the US dollar’s diminishing role with Beijing wanting to curb the greenback’s dominance.