The global economic slowdown amid the trade conflict between two major economies, the United States and China, has resulted in investors' looking at safe havens such as precious metals in 2019.
International gold prices have rallied by over 15 percent this year with the current price above $1,500 per ounce. The rally is the best one for gold since 2010.
The phase one deal between the United States and China is being seen as a holiday season truce by experts and there is expectation of further volatility in 2020.
“There are still many trade issues pending between the US and China and hence, another deal may not be expected soon. Uncertainty prevails on how the trade deal will shape which has supported precious metals prices at lower levels. Moreover, steady investment demand has also picked up,” said Amit Sajeja, Associate Vice President, Motilal Oswal Financial Services.
Further, in Europe, concerns over a looming Brexit is adding to fears of a slowdown in the UK and European economy.
In this scenario, investment demand in global gold-backed ETFs has witnessed a 110 percent rise annually with total holdings of gold ETFs hitting the highest level in November with the inflows of around 1,931 tonnes.
Meanwhile, net purchases by central banks across the globe reached around 156 tonnes in Q3CY2019 thereby taking the total purchases of central banks to 525 tonnes this year.
According to the World Gold Council, on a year-to-date basis, a total of fourteen central banks have reported adding to their gold reserves by one tonne or more.
On the domestic front, MCX gold prices have been impacted by two ways, a depreciating rupee, and global factors. MCX gold prices also crossed Rs 40,000 levels to touch fresh high in September.
It's noteworthy that the government in the Union budget of 2019-2020 increased import duty on gold by 2.5 percent to 12.5 percent from 10 percent.
“The economy will take time to pick up. Currency depreciation and the global factors have supported bullion prices,” Sajeja added.
Sajeja expects gold prices to touch Rs 42,000 per 10 grams by March 2020.
“On the international front, if gold breaches $1,530 level, it may reach $1,610 levels in H1CY2020,” Sajeja said.