Gold prices act as a hedge against inflation amid the low-interest rate environment and a huge amount of liquidity infusion in the economy
Gold prices are nearly 10 per cent off from its record high level following the news developments around COVID-19 vaccine
Gold prices in India rallied 28 per cent in rupee terms so far in the year 2020, following a double-digit gain in the previous year. During March this year, yellow metal hit a 52-week low of Rs 38,400 per 10 grams from the level of Rs 39,100 per 10 gm at the start of the year. However, surging a massive 46.33 per cent, it scaled an all-time high of Rs 56,191 per 10 gm in August. While in the international market, it reached a record high level of USD 2,075 an ounce. On a year-to-date (YTD) basis in the current fiscal, gold prices have surged 17.04 per cent.
According to an analyst, improved prospects of global economic recovery due to successful vaccine development have been a key factor for money rotation from gold to risky assets like equity in the last couple of months. “Four-month correction in gold is over and statically gold should have a strong first quarter in 2021. Gold appears to have bottomed out last month and we might see some hiccup in 2021 when the vaccine is rolled out globally but it would be a good opportunity to go long during that time,” Bhavik Patel, Senior Technical Research Analyst, Tradebulls Securities, told Financial Express Online.
Gold generates steady returns over various time periods
Gold prices are nearly 10 per cent off from its record high level following the news developments around COVID-19 vaccine. Gold has a track record of generating steady returns over various time periods. According to the analysts at Religare Broking, gold has delivered 13.37 per cent annualised CAGR return over the last 15 years, 9.22 per cent for the last 10 years, 14.96 per cent for the last 5 years and 19.75 per cent for the last 3 years. Gold prices act as a hedge against inflation amid the low-interest rate environment and a huge amount of liquidity infusion in the economy.
Gold may test Rs 65,000 per 10 gm in 2021
Bhavik Patel expects gold to test $2150-$2200 in 2021 and sees silver hitting $35-$40. While on MCX, gold is expected to test Rs 62,000-65,000 in 2021. The fiscal measures to stem the economic fallout due to COVID-19 have already surpassed the last crisis in 2008 with no sign of slowing down. “Money supply has rocketed by more than 20 per cent in just four weeks which is pushing the US dollar down and increasing inflation,” Patel said.
“As we approach 2021, gold will remain in focus for investors, as central banks across the globe have pledged to keep rates low, and easy liquidity to aid growth,” said Nish Bhatt, Founder & CEO, Millwood Kane International. The efficacy of the vaccine, proper implementation of the vaccination process in developing countries, low-interest rate regime, and the global central bank’s stance on liquidity will guide gold prices in 2021.
According to the analysts at Religare Broking, even as volatility in gold prices may remain high after the sharp run-up, metal has a firm support zone at Rs 47700-47200 per 10 gram levels ($1750 per ounce), while the major floor is seen at $1680 per ounce or Rs 44800 per 10gms. “As long as the counter is placed above the mentioned support area, long term structure looks positive where one can expect an upside move towards Rs 53500 per 10 gram initially and then towards Rs 60500 per 10 gram in the medium-term,” the brokerage firm noted. While for the year 2021, it believes gold prices can even scale higher towards Rs 65000 per 10 gram.