Investors bullish on gold gaining 12% in a year

Jewellers, analysts expect prices to rise at least 12% this calendar year

Jewellers and analysts expect gold prices to gain at least 12 per cent this calendar year on intermittent demand from institutional investors and safe-haven buying by retail consumers, especially in the United States. The presidential election will be held in the US in November. Trading currently at ~48,041 per 10 grammes, gold price is expected to reach a record ~54,000 per 10g by the end of this calendar year.

Jewellers and analysts expect gold prices to gain at least 12 per cent this calendar year on intermittent demand from institutional investors and safe-haven buying by retail consumers, especially in the United States, where the presidential election will be held in November.

Trading currently at ~48,041 per 10 grammes, after hitting a record high of ~48,380 per 10g on June 24, gold price is expected to reach a record ~54,000 per 10g by the end of this calendar year. The surge in the rupee value of gold will shadow the global trend.

Gold has proved a safe bet with the global economy reeling from the body blow dealt by the Covid-19 pandemic. The rise in tensions between China and other countries has added to its appeal.

Gold is the only asset class that has offered 23 per cent returns in the first half of the calendar, and a staggering 41.6 per cent over the past one year. Since January 2017, gold investors have become richer by 72.6 per cent.

“Fundamentals are currently in favour of gold prices,” said Anantha Padmanabhan, managing director of NAC Jewellers, a Chennai-based retailer. He said the Donald Trump administration in the United States might announce programmes to spur growth there, in an attempt to boost its popularity. This might keep the dollar under pressure and support gold, he added.

“Apart from that, rise in geopolitical tensions between China and the rest of the world also favours gold as a hedge against economic downturn. Thus, we see gold prices touching ~54,000 per 10g with sharp volatility by the end of calendar 2020,” Padmanabhan said.

However, rising unemployment rates across the world is a major cause of worry.

Gold prices are moving up because of high investment and consumer demand in the United States. A report by Metal Focus, a consultancy, suggests gold supply will fall by 5 per cent this year. The London headquartered research firm said gold price will average $1,700 per ounce in 2020, against an average price of $1,661 in the first half of the year.

In the international markets, gold prices reported a gain of 16.7 per cent in the first half of calendar year 2020. Gold price in the spot London market is currently quoting at $1,771.3 an oz, a rise of 47.6 per cent since

October 2018, and 25.7 per cent in one year.

The jump in rupee value of gold was sharper than in dollar because of 8.6 per cent depreciation in the Indian currency over the past year. The rupee closed on Friday at 75.6 against a dollar, compared to 69.2 a year ago.

Meanwhile, the International Monetary Fund’s (IMF’S) forecast of the world and Indian economies contracting in 2020 has taken a toll on crude oil prices, which contracted by 40 per cent since January.

Prithviraj Kothari, managing director of Riddisiddhi Bullion, one of India’s largest bullion dealers, said, “Gold prices will remain highly volatile in the next six months as mining companies will start increasing supply to take advantage of high prices and hedging in the world markets.” He is, however, bullish on gold.

Kothari advices consumers to buy gold at any price available as the yellow metal is the only source that has the potential to provide high long-term returns.

“Gold prices kept the firm trading range despite a rally in equity indices. The worries over record virus cases in the US and other parts of the world have kept risk premium high in gold prices. The US Federal Reserve’s new capital rules will put a cap on bank dividend payments as well as halting share repurchases until the end of the year, which also supported gold prices,” said Tapan Patel, senior analyst (Commodities) at HDFC Securities.