6 Factors That Can Drive Gold To Bounce Back To Fresh Record Highs

Gold prices in the futures market on the MCX traded marginally lower by Rs. 42 to Rs.44818 per 10 gm. This is against the trend in international pricing of gold where it remained steady owing to gains in the dollar, though some support was offered due to easing of US treasury yields.

In the international markets, spot gold saw marginal change in pricing at $1,734.81 per ounce by 0130 GMT. U.S. gold futures were steady at $1,732.90 per ounce.

Amid extended lockdowns in Europe, dollar is fast gaining appeal as a preferred safe haven and has risen to a four-month high against the Euro today.

Factors that will support gold in rebounding to fresh highs

Gold has seen a sharp correction of over 20% ever since progress on vaccine for Covid 19 virus has been made and different economies iterated that recovery from the Covid 19 led downturn has been faster than expected, fuelling investors' risk appetite.

But now bullish outlook on gold is held on the following premises:

1. Rising number of coronavirus cases across the globe including India:

On Wednesday, the health ministry in an update said a new Covid 19 variant has been found in as many as 18 states. Besides, in the last 24 hours, India recorded over 50000 new Covid 19 cases, the highest one-day rise this year, taking the total tally to 1.17 crore, the third highest case tally only after the US and Brazil.

As per the data from John Hopkins University (March 22, 2021) total deaths due to Covid 19 around the globe have reached 2.7 million and confirmed cases are at 123.2 million. This is the statistics across close to 200 countries. Further the report highlighted after the US, Brazil and India, Russia, the UK and several European countries have reported the highest number of Covid 19 cases.

2. Fresh lockdowns again:

In some of the countries partial lockdown is being put in place and this is making investors jittery and reducing their risk appetite. On Saturday, countries like France, Poland and Ukraine implemented new lockdowns to curb rising coronavirus infection. And any lockdown measures will dent the economic recovery across the globe and in times of economic unrest, the yellow metal gains appeal as a safe-haven.

3. Central bank's accommodative stance and fresh stimulus:

Globally central banks have been infusing liquidity to support the economies still under the recovery phase from the pandemic led downturn. This scenario doesn't augurs well for the economy as it tends to increase debt and impact inflation, nonetheless it would be beneficial for the bullion market.

4. Low interest rates:

Interest rates are unlikely to head northwards in the near to medium term and gold shares an inverse relationship with interest rates. Meaning to say that in low interest regime, the opportunity cost of holding the bullion reduces and hence people tend to buy the bullion aggressively which pushes demand and hence the price of gold.

5. Low prices are pushing demand for physical gold:

After the price of gold has corrected sharply from its all time high, there has been a pickup in demand for physical as well as paper gold in India. Investors looking at gold as a long term investment are betting on SGBs that earn regular interest income, while ahead of the wedding season there is seen demand for physical gold. This increase in demand could also support metal prices.

6. Inflationary expectations:

On higher liquidity there are surfacing concerns over inflation. And in times of inflationary distress, while the value of currency erodes, usual investment avenues fail to deliver inflation-beating returns and hence people tend to park their funds in gold. Moreover, gold acts as a perfect hedge against inflation as it is not impacted by variations in the value of currency.

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