Gold shines bright in FY20 clocking 30% returns

By Urvashi Valecha

Gold has emerged as the best performing asset class of FY2020 as it delivered 29.7% during the year. The Covid-19 pandemic and the trade war prior to that took the wind out of risky assets. A weaker rupee further added to gold’s sheen in FY20, making more investors take refuge in the safe haven asset. Going ahead, market experts expect gold to either outperform or reach the Rs 50,000 per 10 gram mark in the country.

Gold closed at Rs 40,989 per 10 gram on March 31 at MCX, taking the returns generated by the yellow metal to 29.7%. This makes it the best performing asset class in FY20 after three consecutive years of underperformance according to data on Bloomberg. For FY20, equities generated negative returns, which means that the returns from equities was down by 26%, Bloomberg data showed.

According to Ravindra Rao, vice-president — head commodity research, Kotak Securities, one can compare the current scenario for gold to the one during the 2008 financial crisis. During the financial crisis, gold prices fell at first and continued to be highly volatile. After quantitative easing by central banks causing a liquidity infusion the yellow metal prices picked up.

“Until now, the prices of gold are still subdued because of panic selling due to the Covid-19 pandemic. Once the virus is contained, gold will rally even more for the next six to eight months. Gold has already gained 11% in the first three months of the calendar year. It could even outperform the growth it saw in FY20 and reach the `50,000 mark towards the end of FY21,” he said, adding that with the International Monetary Fund (IMF) announcing that a global recession is likely, the rally of gold would be much stronger.

On April 1, 2019, the price of gold on MCX was Rs 31,643 per 10 gram. The prices of gold rallied for the better part of the year because of the geopolitical tensions surrounding the US-China trade war. According to Hareesh V, head — commodity research, Geojit Financial Services, the trade war and the Covid-19 pandemic are the main reasons for the surge in gold prices. But, in India specifically, depreciating rupee has a role to play as well.

“In India, gold prices have risen because of high international prices and weaker rupee. Around the world, gold prices are determined in dollars and since the rupee has been depreciating so, the gold prices have increased much more,” he said, adding that if the rupee were to reach 80 or 85 against the dollar then, the price of gold could go up to Rs 50,000 per 10 gram. The rupee has depreciated 8.6% in FY20 and closed the year at 75.63 against the US dollar.