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Will gold prices continue to rise?
Posted on: 28/Jul/2020 10:01:15 AM
Many gold analysts have now revised their price targets saying that prices could go up to Rs 65,000 per 10 grams in the next 18-24 months. Analysts are bullish as the fundamental factors like lower interest rates, negative rates in some economies, an enormous amount of liquidity, and expanded fiscal balance sheets of governments that are trying to push growth amidst COVID-19 are expected to dictate the price trend.
Nish Bhatt, Founder & CEO, Millwood Kane International, said, “We expect precious metals to trade firm until the number of global cases of COVID-19 is under control or a vaccine is introduced in the market which is still a few months away.”
With prices on the rise, investors have embraced gold in 2020 as a key portfolio hedging strategy. Regardless of the recovery type, the pandemic will likely have a lasting effect on asset allocation.
The World Gold Council reports: “It will also continue to reinforce the role of gold as a strategic asset. And we believe that the combination of high risk, low opportunity cost, and positive price momentum looks set to support gold investment and offset weakness in consumption from an economic contraction.”
Returns on Gold Investments
Historically, gold has generated long-term positive returns in both good times and bad. Looking back almost half a century, the price of gold has increased by an average 14.1 percent per annum since 1973 after Bretton Woods collapsed and the gold standard system of pegging the currency to gold ended, WGC says. Gold has surged nearly 40 percent in the last year while the Sensex showed a loss of 0.41 percent at 37,871.52 (Wednesday closing) in the same period.
India’s gold market
WGC has estimated that households in India may have piled up around 24,000-25,000 tonnes of gold. Various temples across the country also hold sizeable gold holdings. The Reserve Bank of India bought 40.45 tonnes of gold in the financial year 2019-20, taking its total holdings of the yellow metal to 653.01 tonnes. While prices had shot up, economic slowdown and the lockdown triggered by the COVID-19 pandemic hit the demand for the yellow metal. As a result, demand for gold fell 36 percent to 101.9 tonnes during the January-March quarter of 2020 as compared to 159 tonnes in the same period of last year. India’s gold demand for the full-year 2019 was 690.4 tonnes compared to 760.4 tonnes in 2018, down 9 percent, according to WGC data.
However, around 120-200 tonnes of gold are estimated to be smuggled into India every year. The government last year hiked the import duty on gold to 12.5 percent.
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