Gold prices have been soaring and the global ETF holdings are at record high but India has not been very strong when it came to paper gold or ETF buying. The last three or four years have seen more redemption than buying but January 2020 was the best in the last 7 years.
Coronavirus has also led to uptick in gold prices.
Moreover, the global treasury yields continued to decline and the decline in US dollar had also led surge in gold prices.
Various banks including Citi reported that in the next 12-24 months, they expect gold prices to head to USD 2,000 per ounce and have upped their forecast for this year to around USD 1,700 per ounce.
David Fergusson, Chairman of Global Precious Metals is also of the view that gold prices would continue to remain strong. “The likelihood is that we will hit the all-time high in dollar terms this year and thereafter, the higher projections that you are seeing could be hit over the course of next 2-3 years,” he said.
Sharing the rationale for revising their expectations, he said, “There are three things responsible for this. Firstly, the fundamentals are very strong. It looks pretty clear that the budget of G7 countries are going to trough in terms of any form of austerity at about 4 percent odd deficit and head up from there, which would result in on-going money printing in the G7 countries. That is obviously strong for gold."
“The stimulus that is going to kick in from China and other places to try and combat the impact of the coronavirus could be quite strong as well. This could result in deficit spending in some countries in Asia for the first time since the Asian financial crisis and that would be strong for gold,” he added.
“The impact of coronavirus on the economy has been fairly significant. I cannot imagine the depths of economic issues that the Chinese are feeling in smaller cities, in the central hinterland of China; it must be very difficult indeed. So, the stimulus would be extended and significant," he said, adding that even if there was a miraculous cure for the virus tomorrow and there are no more infected cases, the impact of stimulus would last and keep pushing up the gold prices for at least the next 6 to 12 months.