On August 2020 gold stands at around Rs.95,599 per Tola and except for minor dips here and there, it is increasing steadily. So the question is why is this happening even though the economy is crashing due to worsening pandemic situations?? What’s the driving price of gold and silver and more so gold to rise rapidly in recent days? The gold price in Nepal is greatly determined by the international Bullion market. Let us analyze some of the reasons:
1. Market Uncertainty Due to Corona:
Nobody literally knows what is going to happen next. Rising corona cases and worsening pandemic situations topped up with extended lockdown in most of the countries including Nepal has lowered the confidence of investors. Therefore they are looking at the yellow gold as the safest investment avenue.
2. Closed Refineries and Reduced Mining:
Most of the mining and refineries in producer countries like the US is closing down due to COVID situation leading to crunch in supply. This crunch as per simple demand and supply rule of economics is leading the gold price to soar.
3.Enhanced Logistical Cost:
As flights to most countries including Nepal is at a halt, it is difficult to supply gold. The cost associated with logistics is increased due to this which adds up to the gold price.
4. Crash in the Stock Market:
The world stock market is crashing due to uncertainties attached to COVID. Investors are selling shares and other volatile instruments and increasing gold derivatives in their portfolio. This has resulted in the maximum spot to future spread in futures of gold bullion. Thus above is one of the main reason in the hike in the gold price
5. Decreasing Investment Rate of Return in Market:
The fixed deposit rate in Nepal in most of the scheduled banks is as low as 5%. This goes for most of the banks around the globe whereas return on gold averages around 30% in the past 6 months. This makes it obvious why investors are flocking to buy gold.
6. Appreciating US Dollar Against Nepali rupees:
The dollar is at constant rise from the past few months making Nepali rupees weaker. In simple words, we need more Nepali currency to buy one dollar than we needed maybe 6 months back. Gold is traded in the dollar in the International market in USD and therefore we end up paying more Nepali rupees to buy the same quantity than we required before.