By J P Cortez
October 19, 2017 marks an important holiday in the Indian culture. Diwali begins.
Diwali is one of the biggest festivals for Hindus, Sikhs, and Jains. It is a lavish celebration of the victory of light over darkness with its gleaming candles, luxurious works of art, and opulent feasts. Diwali is also characterized by gift giving. Buying and gifting gold is considered auspicious during Diwali.
Given the nature of the holiday and the number of people who celebrate it, according to CNBC, the past few years have seen a tendency for the gold price to rise around Diwali. Last year during Diwali, Mihir Kapadia, founder & CEO of Sun Global Investments, said “As heavy consumers, the festive seasons always tend to surge the demand, and considering the current low prices, this should increase the market activity and thus push the prices a little.” Kapadia continued, “We do not expect it to boost prices significantly as the overall market is subdued due to the worries about rising interest rates.”
There is no shortage of economic analysis during the buildup to this year’s celebration as The Economic Times reported “bullion has climbed almost 10 percent on the Indian market this year as world prices increased on… reduced chances of a further hike in U.S. interest rates in 2017.”
However, history shows that rising interest rates do not necessarily make bonds and cash more attractive or push the demand for (and therefore the price) gold down. Interest rate hikes are usually a gold bullish event.
“Gold prices going down after rate hikes is a myth propagated by the financial establishment and portfolio managers who may be intellectually lazy or have a vested interest in scaring people away from gold,” says Stefan Gleason, president of U.S. precious metals dealer Money Metals Exchange. “In reality, central banks are almost always behind the curve, and real interest rates may be going in the opposite direction despite the rate hikes.”
Slaying the Beast Takes Multiple Blows
Diwali is a grand, extravagant multi-day festival celebrating many things by many different groups of people. One of the more popular tales remembered and celebrated during Diwali is that of the brave Lord Rama. According to legend, he returned from exile after having saved his kidnapped wife and slayed the evil demon Ravanna.