Gold’s record run continues on global liquidity deluge

(This story originally appeared in on Aug 06, 2020)

Mumbai: As central banks across the world continue to infuse money into the system to insulate their economies from the impact of a Covid-induced slowdown, investors globally have stepped up their safe-haven play by betting increasingly on the yellow metal. The sharp decline in demand for jewellery in the world’s two largest markets — China and India — was more than offset by the jump in demand by gold exchange-traded funds (ETFs).

Along with gold, the demand for silver as an investment avenue is also on the ascent. Combined with industrial demand for silver, the price of this precious metal is also nearing record levels globally, industry experts said.

On Tuesday night after the gold futures price on Chicago exchange topped the $2,000-per-ounce mark for the first time in history and raced above the $2,050 mark, the price in India for the precious metal crossed the Rs 55,000-per-10 gram mark on MCX, an all-time peak, on Wednesday. And silver, after breaking above the Rs 70,000-per-kg mark, is within striking distance of topping its all-time peak of Rs 75,000 mark, recorded on April 25, 2011.

So far this year, gold has risen 40%, outperforming all other asset classes substantially, except silver which is up 50%. In India, silver went past the Rs 70,000/kg mark on Wednesday and was on course to cross the all-time high of Rs 75,000 mark recorded on April 25, 2011. In the last five days, silver prices have rallied over 10%. The hope of another stimulus and economic uncertainties around the world are also driving prices of these two precious metals, analysts said.

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A report by World Gold Council said that global investors added record amounts of gold-backed ETFs to their portfolios in the first half of 2020. “Inflows into these products reached 734 tonne by the end of June, taking total global holdings to a new record high of 3,621 tonne, with assets under management hitting a record $206 billion,” the report said. So far in the year, investors have put in a record $47 billion into gold ETFs, WGC report said.

In comparison, the demand for gold for jewellery in China was down 52% in the first half of 2020 while it was down 60% in India during the corresponding period, the same report pointed out. In both the countries, the sharp slide was due to Covid-related market disruptions.

Analysts feel the rally in these two precious metals is far from over. According to Kishore Narne, head — commodity & currency, Motilal Oswal Financial Services, a host of positive global and domestic factors have combined for continuing up-trend in the prices of both the precious metals. “Slowing jewellery demand is more than replaced by investor demand in to ETFs as well as coin and bar sales. We continue to be bullish on gold with a potential targets range between Rs 65,000 and Rs 68,000 and for silver between Rs 82,000 and Rs 88,000 over the 12-15 months,” Narne said. “We continue to recommend investors to keep a higher allocation towards gold and use every dip to accumulate the metal.”



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