Gold has had a great run in the last 2 years, which few would have expected. In 2019, the precious metal gained almost 19 per cent, while in 2020 it jumped almost 40 per cent (year to date) in India.
There is a possibility that we may see gold rates in India rally even further, as the world still continues to grapple with various problems and a weak dollar.
"Gold prices would continue to climb up amidst the heightened liquidity, which could lead to higher inflation and thereby bloating fiscal deficits of governments putting additional stress on their currencies including US dollar. Weakness in the dollar, in turn, is likely to support commodity prices - especially gold.
Given the current backdrop we treat this dip as golden opportunity to accumulate gold for a medium term perspective and advice buying gold around $1840- 1850 on COMEX and around Rs 49,000 on the domestic front. We continue to maintain our bullish stance on gold with our targets of $2,450 by the end of 2021 on COMEX, and Rs 65,000-68,000/10gms on the domestic front," Motilal Oswal has stated in its latest report the 'Golden Dip'.
Money moving into gold ETFs
Gold Exchange Traded Funds (ETFs) are also seeing a steady inflow of money, which is helping gold prices. This comes at a time, when demand for physical gold is not at its very best.
"Inflows into gold-backed ETFs (gold ETFs) accelerated in Q2, taking H1 inflows to a record-breaking 734 tonnes. First half inflows surpassed the previous annual record from 2009 of 646 tonnes and lifted global holdings to 3,621 tonnes.
The US dollar gold price gained 17% in H1, following a 10% increase during Q2. Strong inflows into gold-backed ETFs fuelled the rise," the World Gold Council has said.
Gold prices may continue to remain firm through the year 2020, given various conditions right now. In fact, as we write there are reports of a second wave of Covid-19 infections through Europe. Some countries including Denmark, Greece and Spain have already introduced new restrictions on activities. With economic activity unlikely to rebound anytime soon, gold may continue to remain firm.
Even if a vaccine is found the trend of gold is unlikely to change rapidly. "Realistic possibility of a vaccine hitting the market can be expected in the end of 2020 or beginning of 2021, which will gradually roll into mass production followed by globally supply. All this is likely to give a knee jerk reaction, but not change the trend of the metal," Motilal Oswal has said in its report.
For those who are waiting for a sharp decline in the price of the precious metal, it is unlikely to happen anytime soon. At best, one may see a bit of correction in the metal. In all probability we might see the precious metal continue to trend higher. Those who have invested should stay invested, as gold is a great way to diversify. On the other hand, investors who are looking to buy into the precious metal may want to do so on dips. At the moment all that glitters is gold... and that trend in the short term looks firm.