5 Reasons for the recent rise in Gold Price

August 18, 2019 | DWAIPAYAN REGMI

Gold is an integral part of Nepalese culture. From festivals like Teej to the marriage ceremony. From death rituals to status – gold has its significance in Nepalese society. It is one important form of a gift, and something must at the time of the marriage ceremony. The rise in gold price may not create an impact like increment over fuel prices, or prices of foodstuff like milk – as people can avoid gold, minimize gold or find alternatives. However, that does not mean they won’t be any sort of impact at all. Although categorized as a luxurious product, the rise in gold price is certain to create an impact on Nepalese society. This rapid rise over the gold prices at this time has some reasons. The following reasons explain why the gold price is rising at this point.

1. The decreasing interest rate of US Federal Bank

Lower interest rates helped noninterest yielding assets like gold. This decreasing rate helped gold by bushing down bond yields reducing opportunity cost. After the US Federal Reserve bank cut down the interest rate, there appeared a currency war between the dollar and the Chinese Yuan. After all, gold prices and interest rates have an inverse relationship. The rise in interest rates brings the downfall of gold prices and vice versa anyway.

2. Weak Share Market

This is not only the case of Nepal, but the stock market is facing its downfall across the globe at present. One important reason, for the downfall, is because of losing interest in other forms of investment. People started investing in gold instead of other options. They started selling their shares at a rapid scale devoting their trust over the gold.

3. Geopolitical Tensions

Diminishing the German economy, issues of the US with Iran and North Korea till Kashmir’s issue – they are creating uncertainties over political moves in upcoming days. Gold is only a way to ensure an individual’s certainty. Potential hedge against rising geopolitical uncertainty is a key reason why this hike is taking space. After all, gold is not tied to any one country or economic system making it particularly attractive right now.

4. China-US Trade war

The Unpredictability of the market as a result of the US-China Trade War, Trump’s policies, issues concerning Brexit and political tensions within the Middle East have been one important aspect for confusion over a global economic slowdown. This has thus helped in an increment of gold prices gradually. Investors seem to be gaining much more belief over gold than other instruments – shares, debentures, bitcoins, etc, as they are losing the value.

5. Dollar price fall

Currency’s worth is one important section which influences the gold price. It is generally denominated in dollars. The weakening of Indian rupee against dollar resulted in the rising of gold price in rupees term. And, we have a direct peg with Indian currency here in Nepal. This weak currency is pushing up the gold price globally. China devalued Yuan by 2% against the US dollar because of the same reason. There always existed one important relationship between gold and dollar price. Higher the dollar price, lower the price of gold. The case is exactly opposite as of now again.

Meanwhile, there are other reasons like the rapid purchase of gold by central banks, an increase in demand across South Asia which has been acting as a role player. It is not yet certain, about how much the price will rise. But, check out the past trend, five years back, the rise in the gold price was at a similar pace. However, it started falling once it kissed the peak. Gold has a direct relation with several economical moves after all.


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