If vaccination progresses smoothly, it could dampen gold’s protected haven appeal and investors could rather pick out to invest in riskier assets. Image: Reuters
By Ravindra Rao
Gold has been on a rise for the final couple of years and the rally exacerbated this year owing to pandemic, which forced central banks and governments to undertake unprecedented monetary and fiscal measures to help their economies. Gold surged to a record higher level of close to $2080/oz in August 2020. However, it witnessed a correction of about 15% reaching a low of close to $1770/oz in late November, ahead of recovering back to at the moment traded $1880/oz. The current sell-off has been mostly due to profit-taking amid hopes of a COVID -19 vaccine and year-finish position squaring. Although it has slightly dented industry sentiment all round outlook for gold is nonetheless upbeat.
With the substantial monetary and fiscal expansion, issues about inflation, currency debasement could help gold costs. Escalating virus circumstance is proving to be a challenge for the worldwide financial recovery. In 2021, the essential region of concentrate will be how quickly the huge population is vaccinated to assistance economies reopen and normalize. If vaccination progresses smoothly, it could dampen gold’s protected-haven appeal and investors could rather pick out to invest in riskier assets like equities and economically sensitive commodities. Apart from this, decrease interest prices worldwide and US Dollar’s downtrend may possibly prove positive for the yellow metal. The all round outlook for gold remains bullish having said that it could not repeat the 2020 overall performance unless the virus circumstance requires a turn for worse.
In 2020, the Indian gold demand was severely impacted, by greater costs and slower financial activity. The sector has having said that observed some recovery with choose up in jewellery sales close to festivals. Market players are now hunting at the Budget to see if the government requires any measures to enhance recovery in the jewellery sector. One of the lengthy-standing expectations of the sector is to lower the import duty to enhance retail sales. A duty reduce could make the domestic gold value more affordable and this could assistance enhance demand. Another concern of the sector is KYC norms for jewellery purchases as it could dampen demand from modest purchasers. E-gold has come to be increasingly well-known in urban India but more efforts are needed to improve its appeal in the rural industry in the type of digital literacy and awareness.
There are also talks of a Gold Amnesty scheme, as the move will assistance tap on unaccounted gold even though government tax income could improve. In the final couple of years, there has been an rising emphasis on boosting gold refining in India. The government could take additional measures to incentivize domestic refining.
(Ravindra Rao is VP- Head Commodity Research at Kotak Securities. The views expressed are the author’s personal. Please seek the advice of your monetary advisor ahead of investing.)