Elevated US 10-year TIPS yields around 3% have increased the opportunity cost of holding precious metals, causing MCX gold prices to drop approximately 5% in October. In India, elevated retail prices, market volatility, and competing household expenses like education have softened demand for jewellery, coins, and bars. Meanwhile, the central government is unlikely to lower gold import duties immediately due to current account deficit and foreign exchange considerations. However, central banks accelerated their purchases during the September quarter at the fastest pace since late 2024 to mitigate sovereign credit risks and trade frictions.
Key points
High real yields are eroding the appeal of gold by offering attractive returns on alterna…: High real yields are eroding the appeal of gold by offering attractive returns on alternative yielding defensive instruments.
Analysts project the asset will enter a multi-year consolidation phase that could underpe…: Analysts project the asset will enter a multi-year consolidation phase that could underperform equities and industrial commodities.
Strategic reserve management by global central banks is counterbalancing retail softness…: Strategic reserve management by global central banks is counterbalancing retail softness to hedge against geopolitical fragmentation and credit risks.
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Historically, gold has acted as a classic safe-haven asset, rallying during macroeconomic slowdowns. However, MCX gold prices declined around 5% in October despite the US Federal Reserve’s hawkish pause, a softer US dollar, and geopolitical tensions in West Asia.
Hitesh Jain, executive vice president at Yes Securities, in an interview with Mint said gold's recent price weakness stems from higher real yields (US 10-year Treasury Inflation-Protected Securities or TIPS around 3%) and a shift in safe-haven preferences toward yielding or defensive alternatives like US Treasuries, the Swiss franc, and the Japanese yen. Gold’s safe-haven appeal is fading because the global economy is moving away from a ‘savings glut’ era to ‘capital formation’.
While elevated absolute gold prices, rising household commitments (education, housing, consumption) and attractive fixed-income/equity yields have dampened India’s fetish for gold jewellery, Jain does not expect import duty reductions any time soon.
Overall, he sees gold transitioning from a secular bull market into a prolonged, cautious consolidation phase over the next three to five years, potentially underperforming equities and industrial commodities. Below are edited excerpts.
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