NEW DELHI: Gold has had a bull run through the Coronavirus year so far, with prices rising by some 25.5 per cent between Jan 1 and July 16. The question being asked by investors and analysts alike is whether this run will last into the coming year or will peter out.
Historically, investors in gold have tended to consolidate and pause after a multiple month run, sometimes pushing prices down marginally.
However analysts, banking on the twin facts that the world will continue to face a recession this year and that governments and central banks would try to combat that with large doses of release of money, are now betting that the gold run is here to stay at least till the middle of next year.
Goldman Sachs has analysed that gold will continue to rise and forecast a target of $ 2000 for 2021. Citi analysts are similarly optimistic about the yellow metal.
Currently in the global market, 24 carat gold is selling at $ 1810 an ounce or Rs 47, 814.21 for 10 grams. Prices in India are slightly more as taxes here are higher and 24 carat gold is trading currently at about Rs 41,150 doe 10 grams.
Gold has had a fantastic run this year. On January 1, 2020, it traded at Rs 39,150, rising to Rs 41,200 in just one month’s time. From there it jumped to Rs 43,210 by April 1 and to Rs 47,700 by June 1.
With the International Monetary Fund forecasting a shrinking of the global economy by 5 per cent this year, and continued fall in global stock market indices, Goldman Sachs and Citi believe investors will continue to favour gold as a safe haven.
Their logic is the age old adage – the more gloomy the market, the higher the price of gold. During the Great Depression, analysts point out gold prices rose from $20.67an ounce in 1929 to $35 an ounce in 1934.
Similarly, during the global slowdown triggered by the Lehman Brothers crisis in 2008, gold prices jumped from a little over $700 an ounce to $1900 by October 2011.
However, commodities trader Vikram Sawhney feels the forecasts maybe to optimistic, “As the economies around the world reopen, there will be growth hotspots like China, Vietnam etc., money will flow there … there is a limit to betting on gold as once the global economy comes back on track, which it will by 2021-2022, gold will certainly lose its shine.”
Sawhney and others who hold this belief, however, agree that in the short run gold will continue to “rule the roost.”
Brokerages banking industry also point out that non-interest bearing assets like gold and artefacts do well in times when interest yields on bonds are near zero as has happened in most countries. Says financial analyst Sushil Vir “gold as a pure investment is attracting people.” A report by Credit Suisse seems to vindicate this belief, stating that ETF holding trends have “been rising for six successive months and has now crossed 100 million ounces for the first time (in mid-June)”.