Jewellery Stocks Rise Up To 4% As Gold Prices Hit 2-Month High
Gold prices climbed to their highest level in more than two months, supported by lower US Treasury yields and a weaker dollar. The rally lifted shares of gold-loan companies Manappuram Finance and Muthoot Finance, as higher bullion prices increase collateral values, potentially supporting loan growth and reducing credit risks
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Shares of gold-financing companies Manappuram Finance and Muthoot Finance gained on August 20 as gold prices surged to their highest level in more than two months. The rise in bullion prices was supported by softer US Treasury yields and a weaker dollar.
Manappuram Finance shares gained around 2%, while Muthoot Finance rose 4%. IIFL Finance also traded higher during the session.
Gold Rally Supports Gold-Loan Companies
The increase in gold prices is positive for lenders that provide loans against the precious metal. Higher bullion prices raise the value of gold pledged as collateral, potentially allowing lenders to disburse larger loans while providing an additional cushion against credit losses.
Spot gold climbed above $4,525 per ounce, its highest level since June 2, following a gain of more than 4% in the previous session.
Market analysts, however, cautioned that gold’s sharp rally could be followed by some consolidation. They noted that prices had broken through the $4,400-$4,500 range and that maintaining levels above this zone could support further gains.
US Yields, Inflation Concerns Keep Gold in Focus
US bond-market developments have remained an important driver of gold prices. The US Treasury announced plans to double the size of liquidity-support buyback operations involving longer-dated Treasury notes and bonds.
The announcement followed a significant bond selloff, with investors demanding higher yields amid increased inflation concerns.
The outlook for US interest rates is also influencing bullion markets. Minutes from the Federal Reserve’s latest meeting indicated that several policymakers were concerned about inflation and open to higher interest rates.
Markets currently see a greater probability of the Fed holding rates in September, although a rate hike remains possible.
Gold generally benefits from lower interest rates and declining bond yields because the metal does not generate interest income. Conversely, higher rates can reduce its attractiveness relative to yield-bearing assets.
Analysts also pointed to concerns surrounding government debt, fiscal pressures and financial stability as factors that could continue supporting demand for gold as a safe-haven asset.
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