Gold prices in India traded near all-time high levels and hovered above Rs 49,200 per 10 grams, rising more than 25 percent this year so far. Tough, the pandemic-induced lockdown has resulted in a decline in physical demand for the gold, the prices are on an upward spree.

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Experts feel the jewelry demand is expected to decline by 50-60 percent in the near term. This will be supplemented by investment demand due to the bleak macroeconomic scenario that has dented risk appetite.

“The physical demand for gold is low due to a number of reasons. The retail gold prices are very high reducing purchasing power, restrictions on the movement of people due to lockdown and expectations of no major rebound in rural economy are some of them,” said Jigar Trivedi, Fundamental Research Analyst at Anand Rathi.

About 40-45 percent of jewelry shops are now operating in the country but the demand is currently 30-40 percent compared to the pre-COVID-19 levels.

Despite this, the sentiment for the gold remains bullish on the back of investment demand. Safe-haven appeal for gold remained intact on mounting fears over the fast spread of coronavirus infections. Denting hopes of swift economic recovery globally also supports the yellow metal prices.

“The rally in gold is fuelled by the global growth concerns and the unprecedented amount of liquidity infusions by central bankers. Moreover, low or negative interest rates in many countries, which may continue at least for next 18-24 months and the big slippage of fiscal deficits across emerging markets could push some of the emerging markets currencies weaker taking the gold price higher,” Kishore Narne, Associate Director-Head - Commodity & Currency, Motilal Oswal Commodity told CNBC-TV18.

Narne expects gold prices to hit Rs 65,000 - 68,000 per 10 grams levels before December 2021 depending upon the currency trajectory.

“Gold never acts like a commodity, it does not work on supply and demand situation. It acts as a currency, so it is more interest rates, liquidity, how the currencies are moving, how the macroeconomy is performing - that is what actually drives gold rather than the demand and supply,” Narne noted.

According to the World Gold Council data, the Gold-backed ETFs recorded their seventh consecutive month of positive flows, adding 104 ton in June, equivalent to $5.6 billion or 2.7 percent of assets under management, taking global holdings to new all-time highs of 3,621 ton.

On the international front, Jonathan Barratt of Probis Securities told CNBC-TV18 that gold prices may hit $2,000/ounce in the medium term.