MUMBAI: Gold, always considered a safe haven for investment in uncertain times, is likely to glitter more and even soar to Rs 63,000 per 10 grams next year amid expectations of fresh stimulus measures and weaker American dollar.
In 2020, the economic and social uncertainties triggered by the coronavirus pandemic turned the spotlight on gold as a safe haven. The price of the yellow metal reached an all-time high of Rs 56,191 per 10 grams at MCX and USD 2,075 an ounce in the international market in August.
A sharp turn in global monetary policies that led to a low interest rate scenario and unprecedented liquidity, which began in mid-2019, gave a boost to gold price in all major currencies, making the yellow metal attractive for investors.
“The year began (with gold) at Rs 39,100 (per 10 grams) and USD 1,517 (an ounce). The knee jerk reaction to the pandemic was short-lived as the domestic price hit a low of Rs 38,400 from where it steadily rose all the way to Rs 56,191. The stimulus provided subsequently triggered a sharp rise in investment buying in the domestic market,” Commtrendz Risk Management Services CEO Gnanasekar Thiagarajan told PTI.
He said the outlook for gold remains strong despite coronavirus vaccine prospects and economic revival post COVID-19, mainly due to fresh stimulus expectations.
“The dollar could weaken on the back of more stimulus and that could help gold prices rise once again. Also, inflationary expectations due to the massive stimulus can be seen as a positive factor that could attract investment buying once again in 2021,” he said.
The political risk in the US due to a weak majority in the Senate could make things difficult for the incoming Joe Biden-led administration to push reforms and that could aid in the bullion’s upward movement, Thiagarajan said.
“The physical demand (for gold) from India and China will take centre stage in 2021, which has been weak for the past few years and could see a strong revival. We expect prices to test Rs 60,000 or USD 2,200 at least in 2021, provided the rupee remains stable too,” he opined.
HDFC securities Senior Analyst (Commodities) Tapan Patel said the yellow metal is likely to remain bullish next year with targets of USD 2,150 and USD 2,390 in COMEX gold and Rs 57,000 and Rs 63,000 at MCX on concerns over global economic recovery.
“The slower pace of revival of economic activities and labour market growth along with higher amounts of stimulus measures will continue to remain driving factors for gold prices,” he added.
In 2020, he said that gold prices in India got an additional support from rupee depreciation against the dollar during the year as spot rupee was down by around three per cent year-to-date.
Further, the sharp decline in US equity indices in the first half of the year and the fall in real yields drove investors out of dollars which boosted buying in gold, he added.
World Gold Council Managing Director (India) Somasundaram P R said high prices and logistical issues due to lockdowns affected consumer demand in all consuming markets.
Demand was down 49 per cent in India till September quarter making it one of the lowest in WGC’s data series, he said.
“Despite some recovery in the October-December quarter on account of a combination of softening prices, easing of lockdown and rise in social occasions like weddings, demand for gold in 2020 will likely be below 2019, which itself was the second lowest year (in terms of demand) in two decades,” he said.
However, he said that given gold’s socio-economic role, several factors are very supportive of a sharp resurgence in gold demand in the next few quarters.
According to him, consumer comfort with the current gold price levels, pent-up demand, low interest rates and unprecedented levels of liquidity due to all-round monetary easing, among other factors, will lead to a sharp jump in demand.
Global investment platform Stockal Co-Founder and Co-CEO Sitashwa Srivastava said as coronavirus vaccine starts showing results, investments are expected to diversify into other commodities and stocks.
“On the Stockal platform, the transaction volume of US Gold ETFs on Dhanteras spiked almost 50 per cent, which is equivalent to about Rs 15 crore. This festive season growth of investments indicates the increased awareness among Indian investors about US Gold ETFs as an alternative to direct investment in gold. This is predicted to grow further in 2021,” he added.
Investment consulting company Millwood Kane International Founder and CEO Nish Bhatt opined that easy liquidity pumped in by central banks to boost growth led to investors flocking to gold, which is considered a safe haven.
“As we approach 2021, gold will remain in focus for investors, as central banks across the globe have pledged to keep rates low, and easy liquidity to aid growth. Further, a stimulus package from the US government will add to the existing dollar liquidity in the system and may end up weakening the greenback,” he said.
A weak dollar may push up gold prices and the efficacy of coronavirus vaccine, proper implementation of the vaccination process in developing countries, low-interest rate regime, and the central bank’s stance on liquidity will guide gold prices in 2021, he pointed out.