News
Gold ‘sovereign’ price on the boil, driven by record highs in global markets
View(s):By Kapila Bandara
Gold is hovering at eye-watering levels at Sri Lanka’s jewellery retailers, prices rolling over as if on an airport flight display board, reflecting a surge to record highs in global markets.
At state and commercial banks, Sri Lankans who have borrowed by pawning mostly 22-carat gold are confronted with volatile prices and interest rates.
Gold price has rallied in global markets, financial news providers report. The gain so far this year alone has been about 39%.
In trading in the United States, spot gold eased off a record price of US$3,673.95 per troy ounce (more than a million rupees) Tuesday and dipped Wednesday. On Friday, spot gold gained to US$3,651.92, up by 0.5%. December US gold futures edged up to US$3,689.10.
A number of factors come into play, including the US Federal Reserve Bank monetary policy, inflation data, tariff uncertainty, a relatively weaker US dollar, and geopolitics.
A Colombo retailer was enthusiastic on Wednesday, predicting higher prices for a sovereign, or 8 grams of gold, commonly called ‘pawuma’.
In the international gold trade, a troy ounce is a little above 31 grams.
The purity of the precious metal, held in high regard as a hand-down family asset in Sri Lanka, is measured in ‘carats’.
Pure gold is 24 carat (.999 fineness) with no other metals mixed in. Lower carat means less gold; 18-carat gold has 75% gold (.750 fineness) and 25% other metals, often copper or silver.
A bank source said what is commonly pawned is 22-carat gold.
The Colombo jewellery retailer quoted Rs 300,000 for 24-carat gold per sovereign and predicted the price will rise further. He told the Sunday Times on Wednesday that 22-carat gold was between Rs 275,000 and Rs 280,000, and 18-carat gold was Rs 235,000.
For a simple pair of earrings, he quoted a price above Rs 65,000.
As for borrowing, at a Sampath Bank branch in Moratuwa, the gold pawning counter quoted a 12% annualised interest rate for a three-month loan of Rs 192,000 for 22-carat gold. This incurs a monthly interest payment of Rs 1,920.
The display showed Rs 180,000 for three months, but the update came at the counter, reflecting gold price fluctuation.
For six months, the payable interest rate is 13%, a monthly payment of Rs 1,782 for Rs 165,000. For 12 months, the maximum borrowing period, the payable interest rate is 14%, a monthly payment of Rs 1,808 for Rs 155,000.
A stable investment, the yellow metal is as much a financial asset used as a hedge against inflation and market volatility as it is an adornment. It is a widely traded commodity and a main asset in central bank portfolios, especially after the global financial crisis of 2008.
For institutional investors there are gold futures contracts or exchange-traded funds such as SPDR Gold Trust.
Investment return annually is 11% on average, even better than equities and bonds.
While gold continued to rally, the 10-year US Treasury yield dipped by 2 basis points to 4.003% Thursday. Global equities have rallied to record highs as well, as reflected in the MSCI All Country World Index.
Five years ago, gold traded at US$1,962.10. But by May 12, 2024, the precious metal had climbed to US$2,417.40. And then it continued to gain, Comex data show.
On January 2 this year, gold was US$2,669 and bounced to US$3,425.30 on April 21 and dropped to US$3,187.20 on May 16. Then it rebounded to US$3,452.80 on June 13. It climbed further to US$3,683.90 on Monday, September 9, a new peak in 52 weeks, Comex data show.
Other global data sets show that in the spot market, gold has traded higher over a year, from US$1,500 per troy ounce in September 2024 to above US$3,500 on September 5.
More than half the annual global demand comes from jewellery, World Gold Council data show. The 10-year average demand up to 2022 is 2,200 plus tonnes, compared with 569 tonnes from central banks.
A Cambridge Associates analyst has noted that the gold momentum could reverse.
Gold trading is heading into new territory as well.
This month, the World Gold Council, Linklaters and Hilltop Walk Consulting introduced wholesale digital gold to transform the way in which gold is owned and traded. A legal framework has been developed to allow participants to co-own an underlying pool of gold bars held in vaults and issue digital fractional ownership interests in the gold.
The world’s leading gold trading hub, London is expected to lead the way. The Loco London market clears an average of 20 million ounces a day.
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