Gold has historically performed well amid high inflation. In years when inflation was higher than 3%, gold’s price increased 15% on average.
Gold has historically performed well amid high inflation. In years when inflation was higher than 3%, gold’s price increased 15% on average. Notably too, gold does well in periods of deflation. Such periods are typically characterized by low-interest rates and high financial stress, all of which tend to boost demand for gold. It is believed that buying gold on Akshaya Tritiya brings prosperity and more wealth in the coming future. In India gold is seen as an asset to preserve the wealth that is passed on from one generation to another and is an important part of various celebrations. It is no wonder that we are one of the largest consumers of gold in the world.
Buying gold on Akshaya Tritiya is a tradition in many Indian households as it is expected to bring prosperity, good fortunes and eternal wealth.
In early 2020, Gold demand grew due to the coronavirus outbreak, which swept the globe during the first quarter. It was the single biggest factor influencing gold demand. The impact was majorly seen in gold backed ETF’s and gold coins due to safe-haven buying by retail investors. However, Jewelry demand fell extremely low followed by low demand in the Technology sector. Moreover, due to lockdown around the world, mine production and gold recycling operations were halted.
In later half of the year 2020, the demand slightly dropped, due to economic slowdown, continued social restrictions, and high gold prices proved to be the factors. Further, the Central banks generated small net sales of gold especially Uzbekistan and Turkey central banks. Later in November 2020, Pfizer’s vaccine was submitted to FDA for review, as Pfizer said their COVID-19 vaccine is 90% effective in preventing the virus. In early 2021, Multiple vaccine approvals and the launch of vaccination in some countries in December have raised hopes of an eventual end to the pandemic. Many developed countries like UK, Germany, Spain, and many others announced to ease restrictions in May-June 2021.
Additional policy measures announced at the start of 2021—notably in the United States and Japan—provided further support in 2021–22 to the global economy. when USA welcomed the new administration from Joe Biden whose agenda was more stimulus and broader vaccine distribution – the two most important ingredients for a 2021 recovery.
The sizable fiscal support announced for 2021 in some countries, including most recently in the United States and Japan, together with the unlocking of Next Generation EU funds, help lift economic activity among advanced economies.
Major central banks assumed to maintain their current policy rate settings throughout the forecast horizon to the end of 2022. As a result, financial conditions are expected to remain broadly stable for advanced economies while gradually improving for emerging market and developing economies.
Taking this into consideration, inflation was expected to remain subdued during 2021–22. In advanced economies, it was projected to remain generally below central bank targets at 1.5% percent. Among emerging market and developing economies inflation is projected to be just over 4 percent, which is lower than the historical average of the group.
In July 2015, the yellow metal broke the consolidation zone at 27500 levels, also moving above its 52-week SMA. It continued to rally in first half of 2016 posting 32500 mark. This upward move is seen in a five-wave structure, as per Elliott wave principle it is a motive wave hence labeled it as primary wave (1); it was followed by a corrective wave in a zigzag pattern retracing 61.8% of wave (1); labelled it as wave (2) (December 2016 low).
Later, in 2017 gold prices gradually moved up making higher high and higher lows and momentum also accelerated in 2019 and 2020,testing 56190 levels on weekly chart. The sub-waves depicted extended motive wave, thus wave (3) moved 3.618 times of wave (1) as shown in the figure above.
After testing 56190 levels in August 2020, gold prices sharply corrected, which resulted into a downward sloping channel. As per the wave principle, this correction is a complex zigzag correction; and has retraced 38.2% of wave (3), moreover the momentum indicator RSI (21) shows oversold zone at 44108 levels.
Thus, we view that wave (4) has terminated at 44108. However, the conviction would be higher if prices break above the channel and its 52-week SMA at 49000 levels. This breakout of 49000 levels would indicate that primary wave (5) is in progress and its measuring implication as per Fibonacci guideline depicts a rally towards 54500 then 63600 zones. Alternatively, a fall below 44100 would negate our bullish view.
(Rajesh Palviya is Vice President — Research (Head Technical & Derivatives) at Axis Securities Limited. The views expressed are the author’s own. Please consult your financial advisor before investing.)