Gold price is trading at six-year high bolstered by bearish trends in equities amid lingering geopolitical concerns. So far this year, gold has surged over 11 percent while silver too has added 11 percent as the Sensex and the Nifty stay volatile. Compared to bullion, the broader 50-share Nifty has added just 7 percent so far, while the 30-share benchmark has managed to eke out just 8.5 percent returns.
Why has gold picked up?
The yellow metal has seen an uptrend in the recent weeks as investors hedge their bets in a safe asset class amid fresh US-Iran tensions in the Persian Gulf, US-China trade war concerns and on top of all, expectations of the US Federal Reserve lowering interest rates.
In uncertain times, gold is considered to be a good diversified investment and enduring asset class giving protection against inflation. Moreover, gold prices tend to move in the opposite direction from other assets such as stocks and bonds.
Gold demand set to rise further
The global demand for gold in 2019 will rise to the highest in four years as higher consumption by jewellers offsets a fall in purchases by central banks, according to a report by consultancy Metals Focus released in April this year.
The world will consume 4,370 tonnes of gold this year, the most since 2015 and up slightly from 4,364 tonnes in 2018, it said.
Gold consumption for jewellery will rise 3 percent this year to 2,351 tonnes, driven by increases of 7 percent in India and 3 percent in China — the two largest markets — which will counter lower demand in the Middle East, it added.
What experts have to say?
Indigo Precious Metals’ David J Mitchell says that gold will break $2000 per ounce as macro-economic picture deteriorates.
“The macroeconomic picture is deteriorating quite rapidly as we speak. We are going to break $2000 per ounce. We are now in a global debt crisis, global debt saturation. We are looking towards global quantitative easing (QE). The inevitable non-correlated asset diversification into metals is pretty eminent. If you look at global wealth managers, global hedge funds, they are not diversified into precious metals as a percentage of their overall portfolio as of yet,” Mitchell told
Motilal Oswal Commodity’s Kishore Narne says Indian investors in gold have been making significant money over the last 17-18 months.
“We have been bullish on gold for nearly 18 months now. The global macroeconomic picture is looking bleak but at the same time, I think now the room for rate cuts by the central banks is much lower than what we had earlier when Lehman crisis hit us. So the only other option to stimulate the economy is to come out with printing of money. That is what the major central banks will be doing eventually. Right now, we are at the beginning of the rate cut cycle,” Narne told
Gold will outperform silver, Narne added. “When it is a question of silver or gold, I still believe gold is going to be seriously outperforming silver. The observation in India is that we are at an all-time high, not at a six-year high. Indian investors in gold have been making significant money over the last 17-18 months.”
What are the potential downsides to holding gold?
The biggest negative to holding gold is that it doesn’t produce any income, interest or dividends. Its price is highly speculative and guided solely on demand and supply. As a valued commodity, there is also a cost for holding it securely.
Here’s how gold prices have so far fared today
Spot gold hit $1,452.60 an ounce in early trade, its highest since May 10, 2013, before easing 0.2 percent to $1,442.56 as of 0336 GMT. The metal has gained nearly 2 percent so far this week, on track for a second consecutive weekly gain. US gold futures jumped 1.1 percent to $1,444.10 an ounce. Spot gold may climb to $1,461 per ounce, as it has cleared a resistance at $1,439, according to
Reuters technical analyst Wang Tao.
The August gold contract on MCX hit a fresh record high of Rs 35,409 per 10 gram, in line with parent contracts on COMEX. The COMEX contract had hit an over six-year high of $1,454 an ounce today.
-with inputs from agencies