Mumbai: Gold has climbed 15 percent in one month, marking its strongest rally in more than four months after a sharp correction.
The precious metal crossed a record USD 5,500 an ounce in January before falling to nearly USD 4,600 by August. Despite its recent recovery, bullion remains around 16 percent below its earlier peak.
Rising oil prices during the Iran conflict had fuelled concerns that inflation could remain high. This raised expectations that the US Federal Reserve might increase interest rates, putting pressure on gold.
ETF Inflows Support Recovery
Renewed demand for gold exchange-traded funds has played an important role in the rebound.
According to World Gold Council data, about 23 tonnes were added to global gold ETF holdings. Inflows gained pace during August, with around 45 tonnes added month-to-date.
ETF demand is closely watched because stronger inflows suggest that institutional and retail investors are increasing their exposure to bullion.
Central Banks Keep Buying
Central banks purchased 288.9 tonnes of gold during the second quarter, representing a 62 percent increase from the previous year.
South Korea’s central bank also returned to the bullion market after 13 years, strengthening expectations that official-sector demand will remain firm.
A World Gold Council survey showed that 89 percent of respondents expect global gold reserves to increase over the coming year. A record 45 percent said they plan to expand their own holdings.
Dollar And Bond Yields Help
Hopes that the Federal Reserve will keep interest rates unchanged have also supported gold. Higher rates usually reduce bullion’s appeal because it does not offer interest.
The US Treasury plans to double buybacks of longer-dated government securities to at least USD 4 billion per operation next quarter.
The programme could help control long-term bond yields and place pressure on the dollar. Lower yields reduce the cost of holding bullion, while a weaker dollar makes gold more affordable for overseas buyers.
However, investors should consider their financial goals, risk appetite and investment period before adding gold to their portfolios.
