Gold shone for many investors in 2019, as global trading volumes rose 27% y-o-y to $145bn a day, compared with $114bn in 2018.
Geopolitical tensions like the US-Iran conflict may have abated and an expected deal between Washington and Beijing will likely signal a temporary thaw in the trade war, but gold would still witness a decent rally in 2020, on top of its record jump in a decade in 2019, David Tait, chief executive officer of the London-headquartered World Gold Council (WGC), told FE. Not just geopolitics but even “geo-economics” (growing risks from elevated corporate and personal debt levels, etc.) has potential to drive the gold rally, he thinks.
In his first interview to an Indian publication, Tait called upon New Delhi to trim the elevated import duty on gold from 12.5%, arguing that any such move, just like the recent sharp cut in the corporate tax rate, will ultimately bolster the industry and improve the revenue flow for the government. This is because an elevated import duty not just raises smuggling but jeopardises investments by organised players and stifles innovation.
“It (duty hike) is a counter-productive thing to do. I would urge the policy-makers to be brave to reduce the duty the same way many people urge that if you reduce, for instance, the corporate tax rate, you will attract a lot more people to invest. So the net effect is you get higher revenues. It may sound like a contradiction but it’s a proven fact,” Tait said. “(Similarly) The net benefit of reducing the duty on gold, over time, will be a much more buoyant industry, less people resorting to nefarious practices and a more transparent market.” Also, setting up a bullion bank will be among the important first steps in establishing gold as a credible asset class in India, he believes.
High gold duty in times of elevated global prices often weighs on purchases by Indians, most of whom opt for small-ticket transactions.
Asked if the easing geopolictical tensions at the moment would dampen the appeal of gold, prices of which advanced 18.4% in 2019 on the back of crises, Tait said there is more to the precious metal than just a hedging tool against adversity.
“I don’t think you want to be (viewing) gold forever as a hedge against disaster. That’s not the most unique quality of gold. (But) I think geo-political tensions are going to continue because the current administrations around the world are in a state of flux. That constant pressure that we have and the turmoil that we are starting to get used to will underpin gold in the forthcoming few years.”
“Personally, I think, one of the things that will underpin gold will be geo-economic risks, going forward… I am not too worried about the crisis easing. I am pretty certain there is another going to come very soon,” Tait, a former global head of fixed income macro products at Credit Suisse, said. He is currently an independent member of Bank of England’s prestigious FICC Market Standards Board.
Gold shone for many investors in 2019, as global trading volumes rose 27% y-o-y to $145bn a day, compared with $114bn in 2018. Global gold-backed exchange-traded funds added as much as 400 tonne worth $19.2 billion in 2019, driven by strong inflows in the second half of the year. While central banks continued to buy gold to diversify their portfolios, purchases of jewellery and bars and coins faltered, mainly on lower demand in top consumers China and India.
India’s gold demand hit a three year low of 700-750 tonne in 2019, thanks mainly to elevated prices and persisting weak sentiment in rural India (where crops were damaged by heavy monsoon downpours and which makes up for roughly two-thirds of the country’s demand).