Gold on the run surpasses Rs. 56400 mark

Gold on the run surpasses Rs. 56400 mark

As central banks across the world continue to infuse money into the system to insulate their economies from the impact of COVID slowdown, investors globally have stepped up their safe-haven play by betting on the yellow metal. The sharp decline in demand for jewelry in the world’s two largest markets - China and India, was more than offset by the jump in demand for gold exchange-traded funds (ETFs).

Along with gold, the demand for silver as an investment avenue is also on the rise. Combined with industrial demand for silver, the price of this metal is also nearing record levels globally, industry experts said.

After the gold futures price on the Chicago exchange topped the $2,000 per ounce mark for the first time in history and raced above the $2,060 mark, the price in India for the precious metal crossed the Rs 56,000/10 gram mark on MCX, an all-time peak, on Thursday. And silver, after breaking above the Rs 70,000 per kg mark is within striking distance of topping its all-time peak of Rs 75,000 mark, recorded on April 25, 2011.

Gold Analysis Gold on the run surpasses Rs. 56400 mark

Gold has risen 40% this year outperforming all other asset classes substantially, except silver which is up 50%. In India, silver went past the Rs 70,000/kg mark on Wednesday and was on course to cross the all-time high of Rs 75,000 mark recorded on April 25, 2011. The hope of another stimulus and economic uncertainties around the world are also driving prices of these two precious metals, analysts said.

A report by World Gold Council said that global investors added record amounts of gold-backed ETFs to their portfolios in the first half of 2020. “Inflows into these products reached 734 tonnes by the end of June, taking total global holdings to a new record high of 3,621 tonnes, with assets under management hitting a record $206 billion,” the report said. So far in the year, investors have put in a record $47 billion into gold ETFs, WGC report said.

In comparison, the demand for gold for jewelry in China was down 52% in the first half of 2020 while it was down 60% in India during the corresponding period. In both countries, the sharp slide was due to COVID-related disruptions.

Analysts feel the rally in these two precious metals is far from over. According to the head of commodity & currency, Motilal Oswal Financial Services, Kishore Narne said a host of positive global and domestic factors have combined for continuing up-trend in the prices of both the precious metals. “Slowing jewelry demand is more than replaced by investor demand into ETFs as well as coin and bar sales. We continue to be bullish on gold with a potential targets range between Rs 65,000 and Rs 68,000  and for silver between Rs 82,000 and Rs 88,000 over the 12-15 months,” he said. 

As a note of caution as per the technicals shown in the chart above at forexblues we feel that the Gold may go for a deep correction once before another rally may start soon. We continue to recommend investors currently to keep a lower allocation towards gold for the time being and use every dip to accumulate the metal for any future rally.