As coronavirus stalls global growth, safe haven gold may touch Rs 52,000

However, experts also warn that if a COVID-19 vaccine is developed and economic activity picks up, then there could be a major correction in gold prices.

Buying gold as a coin or in some form of jewellery on the occasion of Akshaya Tritiya, an auspicious time for Hindus and Jains, is always considered as a good start and there are beliefs that it brings unending prosperity.

But this time the situation is different compared to last year. The nationwide lockdown due to the novel coronavirus pandemic has made it  difficult for people to buy gold physically as all shops, barring essential services, are closed.

In 2019, around 33 to 35 tonnes of gold were sold on the Akshaya Tritiya. But in last two months, import of gold in India has plunged by over 73 percent year-on-year. In March, India imported just 25 tonnes of gold against around 94 tonnes during the same period last year.

That does not mean that people do not have any option. In fact, in the digital world, people should not get disappointed as they have multiple options through which they can purchase gold. This includes buying gold ETFs from an exchange; sovereign gold bonds; gold coins, bars and jewellery online.

On top of that, gold is always considered a safe haven because the yellow metal helps you the most in critical times, as it can be sold off.

People have been moving towards gold at a time when there is economic uncertainty due to the COVID-19 pandemic globally.

Hence, gold prices have rallied 47 percent from Rs 31,500 per 10 gram levels during the Akshaya Tritiya to trade around Rs 46,500 now. Experts feel that the rally is expected to continue in the coming year.

According to experts, gold can touch Rs 52,000 per 10 gram in India or $2,000 per troy ounce in the international market in coming months given the recessionary fears on the global front, though there could be intermittent correction.

"Since we have seen such a good run up and liquidation in other assets classes, there could be bouts of correction in the near term. But the medium term picture still looks very promising and we expect gold on the Comex to above $2,000 and domestic gold prices could target upwards of Rs 52,000 over the next 12 months," Navneet Damani, VP – Commodities Research at Motilal Oswal Financial Services told Moneycontrol.

Damani suggests that it is a hedge against inflation, an investment and it is an insurance depending on the market participant. "Under the time of distress or panic gold performs best as investors wants to get out of riskier asset and take a shelter under the safe haven asset i.e. gold."

Metal prices have had an aggressive run in the last year. Hence, it is one of the best indicator to gauge the level of uncertainties in the market.

Globally, more than 28 lakh people have been infected by novel coronavirus. Over two lakh deaths due to COVID-19 have been reported so far globally.

Hence, Anuj Gupta, DVP – Commodities & Currencies Research at Angel Broking also suggests that gold trend is still positive on the back of uncertainty and lower global growth forecast.

"We are expecting safe heaven demand always supports the gold prices. This time gold is trading on higher levels (recently gold touched the life-time high of Rs 47,327 levels). Technically we recommend waiting for some correction till Rs 38,000 to Rs 40,000 to buy gold for the target of Rs 50,000 to Rs 52,000 in gold prices. In the international market, gold may test $1,780 to $1,800 levels. Closing above $1,800 levels may lead this rally towards $1,880 to $1,950 levels," he added.

In fact, experts feel that every portfolio should have gold in their portfolio which always works favourably in a risky environment.

"As the Central Banks of developed nations have been on easing spree to fight the economic contraction, the fiat currencies are expected to face pressure in the near future. In such a scenario, gold is likely to emerge as a safe-haven asset. One should have a part of the portfolio invested in Gold ETF as an insurance against the possible volatilities expected in the global financial market," Pankaj Bobade, Head - Fundamental research at Axis Securities he said.

"So, if this Akshaya Tritiya you are looking to buy gold, Gold ETF would be a good option from a long-term perspective," he added.

However, if a vaccine for COVID-19 is developed and economic activity starts picking up, then there could be a major correction in gold, experts warned.

"There is no certainty when the pandemic will be controlled or when we will find a treatment for the same. But if the outbreak is controlled well before the market's worst expectations, we may see economic activity picking and the stimulus infused by central banks and governments may also help. In such a scenario, we may see a quick shift out of gold to riskier assets like equities and commodities," said Ravindra Rao, VP - Head Commodity Research at Kotak Securities.


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