Cogencis, Wednesday, Apr 29
By Roshni Devi
MUMBAI – It is the year that gold has truly lived up to its reputation as a safe-haven asset.
Even with a whopping 19% rise under its belt since mid-March, gold prices still have a long way to go. As central banks continue to pump money into economies, countries look at extending lockdowns and with the looming pall of a recession, analysts are nothing but bullish on gold.
"Gold prices could test $1,850-$1,900 an ounce because the problems are unprecedented. If something more drastic happens, it could even reach its all-time high of $1,950 an ounce," Gnanasekar Thiagarajan, director at Commtrendz Research, said.
Currently, gold is around $1,712 an ounce in global markets.
At home, gold prices are also expected to rise, goaded by weakness in the rupee.
"Gold may rise to 52,000-53,000 rupees per 10 gm in a few months tracking the rise in global prices and as the rupee is seen falling to 77 a dollar," Ajay Kedia, director of Kedia Advisory, said. Currently, gold is trading around 45,890 rupees per 10 gm.
The road to more highs for gold is unlikely to be a straight one. With some countries having started easing their restrictive lockdowns, prices may correct in the short term to around $1,650 an ounce as hopes of improvement in the global economy shave off gold's risk premium.
"Gold's inability to rally...despite equities, yields and the US dollar moving higher and lower in that time, suggests that its one-month rally could have run its course...it implies we will see more tests lower in the short-term," said Jeffrey Halley, a senior market analyst at a US-based trading company OANDA.
But it in the long term, gold is set to rise.
Many countries have been in lockdown for more than a month now, transportation has been severely curtailed, businesses closed and manufacturing suspended.
Amid this, it has fallen to central banks to pump money into economies to keep them running. The coronavirus pandemic has affected the world in unprecedented ways. Economic indicators have been disastrous and governments are likely to continue spending unparalleled amounts of money to avoid an economic collapse.
The US Federal Reserve is likely to keep its key interest rate near zero and hold the line on massive bond-buying programmes. The European Central Bank has pledged to buy hundreds of billions of euros in bonds and may scale up its bond-buying programme in June.
"Global recession fears and hopes of more quantitative easing measures from central banks will keep its long term safe-haven demand steady," Hareesh V., head of commodity research at Geojit Financial Services, said.
Fitch Ratings expects world GDP to fall by 3.9% in 2020, a recession of unprecedented depth in the post-war period.
Investor demand for gold has been on the rise and is expected to continue as markets grapple with volatile stock markets and falling crude oil prices.
Assets of global gold exchange-traded funds and similar products rose 150.9 tn or 5% on year to a fresh record high of 3,184.8 tn in March, the World Gold Council said. In Jan-Mar, they added 298 tn or $23 bln – the highest quarterly amount ever in absolute US dollar terms and the largest tonnage additions since 2016.
"Gold should remain in demand as a crisis currency in this environment, as reflected in ongoing ETF inflows," Commerzbank AG said in a note.
Analysts said that stimulus measures by the Fed and uncertainty in the US because of the presidential elections this year are likely to keep gold prices elevated.
Physical demand for gold in China and India has plunged so far and is unlikely to pick up significantly. While jewellery demand for gold might take a beating, investment demand for the metal may pick up once the lockdown is eased and market participation improves.
"The plunge in physical demand has had little impact on the gold price, as it has been outweighed by strong investment demand due to the virus-related uncertainty. We suspect that this will remain the case until a lifting of virus containment measures enables the global economy to turn a corner later this year," Kieran Clancy, analyst at Capital Economics, said in a note. End
US$1 = 75.68 rupees
Edited by Shirsha Thakur