Gold’s appeal as a safe haven asset has increased significantly as the global economic slowdown seems to worsen amid high inflation and a prolonged geopolitical crisis. Many economists believe early 2023 could see ‘mini recessionary’ situations in many developed economies, which will create a risk-off sentiment, increasing gold’s importance in the portfolio. In fact, in the quarter ending September, emerging economy central banks added almost 400 tonnes of gold to their portfolio, causing quite a stir, as investors and market observers want to know more about such large purchases at a time of global geopolitical uncertainty. We believe geopolitical tension and fear of a slowdown in the global economy may shift demand towards gold as safe haven in the coming year as well. As US Fed Chair Jerome Powell declared last week, the US central bank would continue to hike interest rates in order to combat inflation in 2019. But they may increase interest rates with a less hawkish trend as this may also be supportive of the gold.
India increased the import tax on gold in July from 7.5% to 12.5%.
Weakness in the dollar index and US bond yield also attract investors towards gold as a safe haven asset class. On the domestic front, the demand outlook is robust. It is a well-known fact that India is the second-largest consumer of gold in the world, behind China, and is a large importer of yellow metal to fulfill domestic demands. In an effort to reduce the trade deficit and relieve pressure on the Indian rupee, India increased the import tax on gold in July from 7.5% to 12.5%. However, this didn’t derail the demand significantly and according to the World Gold Council, India’s demand for gold instead increased 14% from a year ago to 191.7 tonnes in the quarter ending in September. We see sustained.
