2 main reasons why gold prices in India are not rallying similar to international markets

Gold prices in India in the spot market are hovering around Rs 72,000 per 10 gm. Similarly, in the futures markets, gold Futures for October delivery traded mildly higher as dovish comments by the Fed weighed on the dollar index and treasury yield.

So, even as the long-term outlook for the bullion remains bullish and gold in the international markets marked a new high of $2,531 per ounce last week, gold has not moved remarkably in the domestic markets.

Mahendra Luniya, Digital Gold Expert, Chairman,  Vighnaharta Gold putting this to context said even though internationally gold prices scaled new high last week, gold prices in the Indian market have not reacted as expected.

In what comes as a support for the bullion globally are the two ongoing wars. The Israel-Hamas conflict has intensified with the assassination of a high-ranking Hamas official in Iran, leading to speculation that Israel is behind it. Iraq has also expressed its readiness to respond, adding to the volatility. Meanwhile, in the Ukraine-Russia war, Ukraine's resistance seems to be weakening as support from Europe and the US wanes.

The prolonged conflict has strained resources, and with upcoming elections, there’s uncertainty about continued support, especially with Donald Trump gaining momentum. This global instability has driven up gold demand internationally, added Luniya.

Domestic gold prices present a different case despite gold prices moving in tandem with international rates 

Luniya noted that even though there is no clear majority, the BJP-led government has instilled confidence among investors, who trust that the government is stable. This confidence is reflected in the steady stock market, which remains attractive to investors despite global crises. The domestic market is witnessing substantial investments in mutual funds, with SIPs amounting to around 25,000 crores monthly. This has diverted attention from gold to the stock market, leading to a lack of significant movement in domestic gold prices.

Also, the recent reduction of import duties by about 6 per cent by the Centre has kept gold prices from rising sharply. Despite the international surge, domestic investors haven’t triggered stop-losses, indicating that they don’t anticipate a significant drop in gold prices. However, they are also not expecting a substantial increase shortly.

Gold price outlook

Given the attractiveness of the stock market and other investment vehicles, a major rise in gold prices in India is unlikely in the next one to two months. Thus, while international factors drive gold prices up, the Indian market remains more focused on equities and mutual funds.