The price of gold in the Indian market reached its highest-ever level, hitting the Rs.33,800 mark in Mumbai.
The current increase in gold prices reflects the larger monetary policy and currency scenarios across the globe.
What are the recent developments?
The gold price rise is driven by increasing demand from buyers and lagging supply in the global market.
Also, not just rupee, but many other major emerging market currencies are witnessing a fall in value against gold.
In fact, many emerging market currencies have already hit, or are quite close to hitting, historic lows against gold.
Against the U.S. dollar, however, gold is still priced well below its all-time high of over $1,500 that was reached in 2012.
This is despite gold showing some appreciation against dollar in the last few months.
The increase in gold price worldwide should be seen against the backdrop of rising uncertainties that threaten to derail the global economy.
How is the global economy at present?
Western central banks have been tightening their monetary policy stances for a while now.
This is leading to increasing fears that this could put an end to the decade-long economic recovery since the 2008 Global Financial Crisis.
The U.S. Federal Reserve has been at the forefront in the current tightening cycle, with recent increases in interest rate.
With better returns, this is leading to flow of capital from emerging markets to the West, putting further pressure on various emerging market currencies.
The rupee, for instance, has depreciated significantly in value against the U.S. dollar in the last year alone.
This probably explains the divergence in the performance of the dollar vis-à-vis other emerging market currencies against gold.
The U.S.-China trade war and the lowered rate of Chinese economic growth have added to fears of a global economic slowdown.
Furthermore, with increased volatility in stock markets, investors seeking financial safety have turned to gold and boosted its price.
Besides, many central banks have been trying to hoard gold to restore confidence in their currencies.
Driving factors - Apart from short-term influences, there are other long-term factors at play as the price of gold is moving towards new highs.
The fall in gold price after 2012 led to a fall in capital spending by gold miners.
This has meant that supply has failed to keep up with growing demand.
The depreciation in the value of national currencies against gold is also an indication of the increase in inflationary pressures across the globe.
What lies ahead?
The easing of policy by global central banks can possibly put an end to the current increase in gold price.
This can go a long way in restoring investor confidence in the global economy.
Nevertheless, the challenge of the risks linked to debt-fuelled growth exists.
