Political pressures around the world and spreading of coronavirus is adding to uncertainty leading to hike in gold prices.
Gold price in India is nearing Rs 44,000 per 10 gram and the price rise has been fairly consistent over the last 12 months. From about Rs 34000 in February 2019 to nearly Rs 42,500 in February 2020, the returns in the yellow metal has worked as a saviour for investors with exposure in the equities as well. Over the last 1-year, the gold return has been about 26 per cent. The recent rise in the price of gold is largely being contributed to the global tensions, tariff-war and off late the spread of Coronavirus.
Before we look at whether the gold price will get pushed higher or not, let us see what could be the reasons behind the rise in gold prices.
A weaker rupee against the dollar is one factor that pushes the gold price higher. Gold is largely imported and hence if the rupee weakens against the dollar, gold prices will likely appreciate in rupee terms. If policymakers strive to stimulate the economy or engineer a depreciation of the rupee to improve export competitiveness, the rupee weakens further and leads to an increase in gold prices to that extent.
“The rise can be summed as currency prices have increased from Rs. 70 to Rs. 72, as Indians are net importers of the gold and with every increase in the price of USD INR gold prices in India increases despite the fact it has increased or not in international markets,” says Hemant Sood, Managing Directors of Findoc, a financial services company.
Globally, the interest rate is on the downward trend. “The decreasing interest rates also attract the purchase of gold, as gold has historically given a return of somewhere around 8-10 per cent and the interest rates are going down which attracts investments in yellow metal which has proven to be a natural hedge against inflation,” says Hemant.
But, are the gold prices expected to go up further? Hemant says, “ In my opinion, the technical charts show that prices have already done 5 waves on the Elliot wave chart, (sometimes it takes extension ) and at this point of time it is waiting for some correction.”
Most financial planners suggest having about 10 per cent of their investments in gold. With global political uncertainties and the fear of the spread of coronavirus impacting economic conditions worldwide, the demand for gold is not looking to go down if not rise rapidly from current levels. “Political pressures around the world and increasing corona disease are adding to the uncertainty. Such uncertainties bring price hikes,” says Hemant.