Amid rising global growth concerns and stock market sell-off, investors are shifting towards safe haven assets like gold. As a result, the rally in gold price which started in the mid of December 2015 took gold prices 15 per cent up to nearly Rs 29,000 per 10 grams on February 11 from Rs 25,250 per 10 grams on December 15 last year.
Gold prices soared to Rs 29,650 per 10 grams on Friday by adding Rs 850, inching it closer to Rs 30,000 per 10 grams, largely in tandem with a firming trend overseas.
With this, the yellow metal has gained Rs 2,600 in the eleven straight sessions, its longest winning streak this year.
Gold prices plunged nearly 6 per cent, 9 per cent and 5 per cent in the past three calendar years 2015, 2014 and 2013, respectively. However, it jumped 31 per cent and 12 per cent in 2011 and 2012, respectively.
On the recent movement of the yellow metal, Vandana Bharti, AVP (commodities), SMC Comtrade, said, “Gold prices jumped nearly 10% since the beginning of the ongoing calendar year as decline in global economic sentiment and plunge in stock markets increased its demand of gold as safe haven. Decline in greenback and increase in SPDR gold holdings also gave support to the gold prices.”
A stagnating global economy is threatening US expansion and casting doubts over whether Federal Reserve policy makers will raise interest rates anytime soon. That’s sending the dollar lower and raising the allure of gold as both a store of value and a haven asset.
The turnaround for investor sentiment also comes as China’s slowdown spurs turmoil for global financial markets. Almost $6.8 trillion has been erased from the value of world equity markets this year.
Despite the turmoil in global markets, Anand James, co-head technical research desk, Geojit BNP Paribas Financial Services, said, “Incidentally, ever since the major downtrend started in late 2011, the first month of all the subsequent five years have been good for gold. So, indeed, there is a seasonality element to the recent rise. Moreover, dollar’s year long steep rise against major peers also peaked around this time, improving gold’s value as an alternate currency. In addition to this, gold’s value as a hedge against uncertainty was boosted by the sharp falls in major global equity markets during this period.”
Back home, the benchmark equity index BSE Sensex fell nearly 20 per cent since the beginning of the ongoing calendar year 2016. So far this year, the market valuation of BSE-listed companies has come down sharply by Rs 14 lakh crore from Rs 1,00,37,734 crore on December 31, 2015.
According to market experts, factors that normally affect gold prices are movement of greenback, global demand of gold from central banks, jewellery and coin demand. Meanwhile, safe haven demand, geopolitical tensions and movement of global stock markets need to be seen before investing in gold. SPDR holdings and investment demand trends also impact gold prices. Global inflationary trends also need to be analysed as gold is considered hedge against inflation.
According to World Gold Council (WGC), gold demand in India for 2015 saw a marginal increase to 849 tonnes from 828 tonnes in 2014. In Q4, 2015 gold demand in grew by 6 per cent to 233 tonnes from 220 tonnes in the same period last year. Total gold jewellery demand in the country for 2015 was up by 5.26 per cent at 654.3 tonnes compared with 621.6 tonnes in 2014.
After the recent upward movement in gold price, Kunal Shah, head of research, Nirmal Bang Commodities advises investors to stay with gold in the present market scenario. “My outlook on gold is still bullish despite a rise of Rs 5,000 in the recent past. I recommend investors to stay invested in gold in the current economic environment. Asset like gold has very high intrinsic value and hence if you will not get 10-15 per cent from here but the metal will preserve your wealth if some major damages will happen in the global economy. I believe gold can test Rs 32,500-33,000 per 10 gram by the end of December 2015,” he said.
Bharti of SMC said, “In the next two years gold prices will be affected by global economic sentiment, currency moves like dollar index and rupee dollar movement. Furthermore holdings of SPDR gold holdings and physical demand from China and India will affect its prices. Moreover the pace of interest rate hike by fed will also affect its sentiments. Gold prices can move in range of $1000-$1400 in COMEX and Rs 25,000-35,000 in next two years.”