The efficacy of the vaccine, implementation of the vaccination process, low-interest rate regime and the global central bank's stance on liquidity will guide gold prices in 2021.
Gold prices in India are closely tracked by those who either want to invest in the yellow metal or buy jewellery. The gold price per 10 gram is a popular indicator to determine how much return has been there over a period. Currently, the gold price in India is nearly Rs 49,000, and the price may vary across cities. The gold price touched a high of Rs 58,000 and has generated about 22 per cent return over 1 year.
It remains to be seen how much return will gold give in 2021 as several factors determine the demand and supply. “Bullions are international commodities and will be driven by international factors a lot. With the news of gold disclosure scheme and KYC in place for gold investors, it can become a little cautious. Broad Range for the gold is around Rs 46000 to Rs 58000. With Covid Vaccine around the corner, there can be some selling expected in gold and it is preferred to buy gold on dips,” says Nitin Shahi, Executive Director of Findoc Financial Services Group.
Investing in gold need to be part of your asset allocation. Along with equities, debt, real estate, some portion can be allocated to gold. “Gold already had a phenomenal run for a year from the last quarter of 2019. Gold investment should be looked from an asset allocation perspective instead of return generating asset class. The level of uncertainly around the world was different in 2020. In 2021, things are improving across the world; hence it is better to avoid going overboard in Gold,” says Harshad Chetanwala, Co-Founder, MyWealthGrowth.com. Diversifying across asset classes helps to generate high risk-adjusted returns in the portfolio.
The price of gold has remained almost stagnant, in fact, come down over the last few months. “The outbreak of the pandemic and a spurt in the number of cases led to economic uncertainties. The excess liquidity injected by global central banks to boost growth led to investors flocking to gold which is considered a safe haven. Gold prices have shed nearly 10% gains from their life high levels as a vaccine was discovered which will help contain the virus and reduce global uncertainties,” says Nish Bhatt, Founder & CEO, Millwood Kane International – an investment consulting firm.
Going forward, the set of factors that made the gold shine may not be the same in 2021. A lot will depend on the strength of the dollar, the success of the Covid-19 vaccination programme and the Geo-political events. “2021 seems to be a good year for gold. With large stimulus checks being cut across the globe, the consequent pressure on stronger currencies like the USD will form the first layer of support for gold prices. Other indicators in favour of gold include the record-high holding of the precious metal by Central Banks, high global debt, high investment demand, higher bond prices and lower interest rate regimes,” says Subramanya SV, co-founder & CEO at Fisdom.
Bhatt sums up the factors that investors can keep an eye on while investing in gold. “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. The latest instalment of the stimulus package from the US government will add to the existing dollar liquidity in the system and may end up weakening the greenback. A weak dollar may push up gold prices. 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.”