Why gold price is setting new recordsGold cost has more room to rise and could hit Rs120,000 a tola in Nepal, observers say.
Gold price continued to soar, reaching an all-time high of Rs110,000 per tola last Sunday in the bullion market. The domestic bullion market closed at Rs109,800 per tola on Friday.
In the international market, the price hit a 52-week high of $2,010 an ounce last Monday.
As per international media reports, gold price has more room to rise and could go as high as $2,600 per ounce.
Investors have been turning to gold after the collapse of Silicon Valley Bank in the US and the struggles of another Swiss bank, Credit Suisse.
Why are gold prices rising?
The Federation of Nepal Gold and Silver Dealers’ Association set the daily gold price in line with international market prices which are the primary determinants of gold and silver prices.
The gold price depends on international factors. Apart from international prices, which are denominated in dollars, import duties and other taxes also play a role in determining gold rates in Nepal.
If the Nepali currency weakens against the US dollar, the price of gold will go up.
Gold price is also dependent on international factors like global economic growth, volatile policies and interest rates.
Gold is considered a safe investment tool in many countries and also acts as an excellent hedge against inflation. Globally, amid rising geopolitical tensions, people have now turned to gold as a safe investment tool.
Tej Ratna Shakya, former president of the Federation of Nepal Gold and Silver Dealers' Association, said with the US Federal Reserve increasing interest rates, gold price is expected to decline.
But the price of gold has continued its upward trend with people considering the yellow metal as a safe investment option, he said.
“In the past, the gold market used to fluctuate by $1 or $2 per ounce, but nowadays, the market fluctuates $20 or $30 per ounce,” said Shakya.
Nepal imposes a customs duty of Rs8,500 on every 10 grams of gold.
Gold is considered a safe haven asset in the international market, so during times of uncertainty or distress, the yellow metal’s prices rise.
“The gold price was expected to cross $2,000 per ounce this year in the international market. The price has already crossed that level and reached $2,014 per ounce. It is expected to rise more due to market uncertainties,” Shakya said.
Price of gold started appreciating following the Covid-19 pandemic. It further rose following Russia's invasion of Ukraine.
Why do Nepalis buy gold?
In Nepal, people purchase gold especially on two occasions—marriages and festivals like Teej, Dashain and Tihar. During the festivals, employees get bonuses from their offices and Hindus consider it auspicious to invest in gold on festive occasions.
In Nepal, gold jewellery is a traditionally and culturally essential accoutrement during wedding celebrations when women put on their best ornaments.
A middle-class Nepali family typically buys five to six tolas of gold when there's a wedding.
In many Nepali communities, the groom’s family provides a set of gold jewellery to the bride that now costs millions. The engagement is also sealed with a gift of gold ornaments.
As the price of precious metal has shot beyond the purchasing capacity of most people amid the slowdown in the economy, there is a lull in the jewellery business as well. Many people today prefer to buy gold-plated jewelleries, according to traders.
What was the price two years ago?
The yellow metal’s price was Rs75,000 per tola before the Covid-19 pandemic. On August 7, 2020, the price reached a high of Rs103,500, crossing the six-digit mark in the domestic market for the first time due to the Covid uncertainty.
Then it dropped to Rs80,000 per tola in 2021. Gold price started rising again, reaching Rs106,300 per tola on January 24, and further increased to Rs 107,500 per tola on February 2.
What is the demand for gold?
The daily demand of gold in Nepal reaches more than 50 kilos during major wedding seasons, especially in February, April and November. It’s around 20-25 kilos a day during Teej, Dashain and Tihar festivals and around 10 kilos on normal days, Shakya said.
The wedding season ended recently, with gold prices soaring. The demand for gold in the domestic market, however, has slowed with the price breaking new records in recent months, Shakya said.
“The trend in the bullion market has reversed. Buyers are selling more gold than bullion traders,” he said. “If people continue to bring their gold for sale, we will not be able to buy it.”
Shakya said people sell their gold to book profits when the prices go up and also to meet their financial requirements given the rising cost of living.
According to the Department of Customs, gold imports declined 22.51 percent to Rs40.39 billion until mid-March, the first eight months of the current fiscal year.
Nepal imported gold worth Rs63.19 billion in the last fiscal year 2021-2022.
Nepal imports most of its gold from Dubai, Turkey and Switzerland.
In April 2020, Nepal Rastra Bank slashed the daily gold import quota from 20 kg to 10 kg in a bid to stem the depletion of its foreign currency reserves.
But responding to high demand, the central bank increased the quota back to 20 kg on April 3, 2021, while bullion traders urged it to raise the limit to 30 kg.
Again on March 6 this year, the central bank slashed the daily import quota to 10 kg to save its foreign exchange reserves from further depletion.