V P Nandakumar, MD & CEO, Manappuram Finance says gold prices in India moves largely in tandem with international prices (after adjusting for the exchange rate).
Gold has been one of the best asset classes of 2016 and has returned nearly 27 per cent since the beginning of the year. The yellow metal which started the year at around Rs 25,000 for 10 grams closed at Rs 31,610 on August 22 as per Indian Bullion and Jewellers’ Association data.
Global uncertainty post-Brexit (Britain’s exit from the European Union) in late June 2016 help keep gold prices firm. In the domestic market, there are hopes that the coming festive season, followed by the marriage season will add strength to the precious metal.
FeMoney spoke to V P Nandakumar, MD & CEO, Manappuram Finance Limited, who are one of the largest gold loan provider to understand his views on the where gold could be headed.
Q. What do you think would the impact of coming festive season on gold prices? Do you see it will remain firm over the next few months?
A. We have to keep in mind that the gold prices in India moves largely in tandem with international prices (after adjusting for the exchange rate).
In the international markets, the demand for and supply of physical gold is only of the factors that influence the price. In times of uncertainty, it is the demand for gold as investment that drives prices. We see this now in the way gold prices have rebounded since the beginning of the year mainly because of the poor state of the world economy and the uncertainty about US Federal Reserve being able to normalise interest rates any time soon.
A. Coming to India, no doubt the festive season will see an uptick in demand but to expect that to have an impact on international gold price would be unrealistic. What can happen is that the recent trend of discount in gold price in the Indian market (compared to international prices) may come down or disappear. As you may know, the discount has come about in recent months because demand for gold jewellery has dropped after the recent sharp increases in gold price.
Q. Do you think 7th Pay Commission payout will also help gold buying?
A. Yes, a part of the payout can reasonably be expected to find its way to gold.
Q. What is your year-end target for gold?
A. As a matter of policy, we don’t give out targets for gold price. However, I personally believe that gold prices will hold firm with a marked upward bias over the remainder of the year.
Q. What are the other domestic and overseas factors that could impact gold prices?
A. In the short term, with the rise in investment demand for gold, domestic factors may not impact gold prices in any significant way.
Among the overseas factors, I would certainly keep an eye on the US Fed. In fact, their inability to push through their stated intention to increase interest rates has been a great source of support for gold price. The other factors to watch out for would be how Europe fares in the aftermath of Brexit and in the longer term, how China manages the shift away from growth led by exports to one led by domestic consumption.