Shining demand: Gold sheen to continue in Samvat 2077 amid massive liquidity boost

By Urvashi Valecha

Even though gold prices fell by 4.5% in the international markets this week, the decline is temporary as the yellow metal will maintain its lustre in Samvat 2077. According to experts, despite the slowdown in the global economy, chances of yet another fiscal stimulus and rising inflation will contribute to the rally in gold prices in the coming months.

Owing to the uncertainty over the US-China trade war and then the Covid-19 pandemic, gold saw a bull run in Samvat 2076, clocking returns of 30.1% in rupee terms and 25% in dollar terms. While the uncertainty over the major events like the US elections and novel coronavirus is nearing an end, experts believe that the long-term outlook for gold remains positive. This is because the global economy is facing a slowdown after the pandemic and will take time to recover. Additionally, markets are expecting yet another fiscal stimulus when Joe Biden assumes office as President, which will lead to an increase in the gold prices. Navneet Damani, head of research — commodities and currency, Motilal Oswal Financial Services, said, “Gold will continue to gain along with revival in global growth as liquidity is going to be immense and most liquid asset classes are likely to benefit. Additionally, fiscal stimulus measures taken by central banks have bloated up the balance sheets. Rising inflation and lack of ammunition in the hands of central banks will help cause a surge in gold prices.”

According to Motilal Oswal Financial Services, gold (MCX) has given returns of 33% in one year, followed by returns of 99% and 159% over a five year and 10 year period. This is higher in comparison with even US equities. Dow Jones in the last one year, five years and 10 years has given returns of 6%, 61%, and 154% respectively. The extent of returns that the yellow metal generates for the next year will depend on the fiscal stimulus measures taken in the US.

Ravindra Rao, vice president — head of commodity research, Kotak Securities, said, “There were two worries that drove the gold prices up earlier the trade worries between US and China and then Covid-19 pandemic. With change in US leadership it needs to be seen how the US-China trade relations shape up. Also, the hopes of further bigger stimulus from US might be positive for gold. Uncertainty on Covid-19 situation, US China trade worries and hopes of more monetary easing measures could mean that for the coming year gold is likely to generate returns between 18% to 20%. If the above factors ease out gold might have trouble generating returns to that extent.” Most market experts believe that the gold prices will touch Rs 65000 to Rs 67000 per 10 gram (g) in the next 18 months. Even though there may be corrections in the short-term which should be used to buy gold.