You don’t really need to have a close look to understand that Gold prices are surging every day. Gold has outperformed all other major asset classes, with gold prices hitting Rs 50,000 per 10 grams on Wednesday in India. This number has been achieved after over nine years.
However, lots of people are wondering whether this trend will continue i.e. will the prices of the yellow metal continue the upward momentum? Will Gold continue its dream run at a time when COVID-19 has triggered uncertainties in the global economy? Is it that the weak dollar, low- interest rates and stimulus programmes have increased the investment in Gold?
In order to answer these questions, we must first look at what is causing the increasing prices in Gold.
Right from the beginning of 2020, Gold performed remarkably; with a 25 percent increase from its low in March. Though equity markets around the world rebounded sharply from their March lows, it was the uncertainty and the ultra low interest rate which stemed from COVID-19 pandemic that supported flight to quality flows.
Surge of Gold prices can be factored in for the investors need to reduce risk, with the recognition of gold as a hedge further underscored by the record inflows seen in gold-backed ETFs. Gold prices in India are dictated by international prices and they have been on the rise in the last few months Gold futures prices soared to a nine-year high of $ 1,856.60 per troy ounce in London on Wednesday, inching closer to their record high of $1,920 an ounce hit in September of 2011. One troy ounce is equivalent to 31.1034768 grams.
Is Gold a safe Haven for investors?
Gold has served as a part of gift in wedding ceremonies in India and in Indian households, it has been serving as a hedge against inflation and considered as a safe haven for investors during periods of uncertainties. Times when stock markets, real estate and bonds fall across the world, investors turn to gold to park their funds. In the lieu of the same, when other asset classes are facing global uncertainties in the wake of Covid-19, Gold climb to a record high.
Will gold prices surge?
Many gold analysts have now revised their price targets stating that how prices could go up to Rs 65,000 per 10 grams in the next 18-24 months. The fundamental factors like lower interest rates, negative rates in some economies, an enormous amount of liquidity and expanded fiscal balance sheets of governments which are trying to push growth amidst Covid-19 are expected to dictate the price trend is bullish by analysts.
Has gold given good returns?
Gold has never failed in yielding long term positive returns. Almost half a century back, the price of gold increased by an average 14.1 per cent per annum since 1973 after pegging the currency to gold ended. In the last one year, Gold has surged nearly 40 per cent while the Sensex showed a loss of 0.41 per cent at 37,871.52 (Wednesday closing) in the same period.
How big is India’s gold market?
WGC has estimated that around 24,000-25,000 tonnes of gold must have piled up Gold whilst temples across the country also hold sizeable gold holdings. The Reserve Bank of India bought 40.45 tonnes of gold in the financial year 2019-20, taking its total holdings of the yellow metal to 653.01 tonnes.