Diwali - the Festival of Lights - always brings cheers to markets, more so to bullion markets. Traditionally, Indians buy at least a small quantity of gold, especially on Dhanteras day, believing it will bring good fortune, wealth and prosperity.
Gold prices have rallied over 29 percent since last Diwali, becoming one of the best performing asset classes. Silver prices are also up more than 35 percent. Both the precious metals made a high in the month of August. But a recent correction just ahead of the festive season is likely to support the bullion prices.
The price of precious metals soared after the March lockdown as the economic distress caused by the COVID-19 pandemic enhanced safe-haven demand amid times of uncertainty. Bullion prices also were boosted from weakness in the rupee by around 5 percent since Diwali in 2019.
Central banks across the globe cut interest rates and provided liquidity in the market to support the ailing economy. Global interest rates are currently near-zero level and are expected to remain low for some time.
“Normally, investors buy gold as a hedge against inflation and uncertainty, although Indians have another purpose of investing in gold, which protects their purchasing power against the depreciation of Rupee over longer periods,” brokerage Motilal Oswal said in a report.
According to the World Gold Council, India's gold demand in the fourth quarter is expected to recover after falling 30 percent in the previous quarter as festivals are expected to strengthen retail jewellery purchases. They expect Q4 would be better than Q3 due to pent-up demand and festivals.
“It has been a challenging year but it appears that Dhanteras could mark a new beginning with gold leading the way in reviving consumer confidence and positive sentiments, reinforcing the widely held belief. The softening of price just ahead of this big day is also very supportive of demand,” said Somasundaram PR, Managing Director, India, World Gold Council.
However, the challenges of lockdown have not gone away, so expectations remain tempered by the fact of high and volatile prices, persisting anxieties of small businesses and unorganized workforce, and general caution in the air about COVID, he added.
Somasundaram is of the view that organised players with meaningful tech interface and better response to emerging buying behaviours, and digital gold platforms promoting micro savings and safe gold accumulations, will do well.
“Gold should be a part of every investor's portfolio, depending upon the risk appetite it can be in the range of 5-15%, with paper gold being the most convenient route to invest in the yellow metal,” says Nish Bhatt, Founder & CEO, Millwood Kane International adding that gold buying during the festive season may provide a boost to the prices.
Going ahead, central banks’ stance, low interest rates and yields, spillover effect of excess liquidity in the market, impact of pandemic and other concerns could set a perfect picture for a gold rally in the long term. The pace of the rally could depend on the updates on US Presidential election, Covid relief bill, development in the pandemic numbers and its vaccine and few other factors although sentiments does look positive for this Diwali too, keeping the hopes high for bullion.
Brokerage Motilal Oswal recommends accumulating gold with every dip towards Rs 49, 500-48,500, which is a good range to buy with short-term upsides being capped around Rs 52,000 - 53,000. On the longer-term perspective, the brokerage maintains the target of $2,500 on the Comex and Rs 65,000-67,000 on the domestic front.
First Published: IST