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Dhanteras 2020: Keep buying gold on dips as these 5 factors still suggest yellow metal remains an attractive bet

The physical demand for Gold is also recovering as the vaccine hopes and festive demand may drive Gold prices up especially from China and Indian perspective.

November 13, 2020 / 10:56 AM IST
Representative image

Representative image

Dhanteras marks the beginning of the festival of lights, and is an auspicious occasion for Indians that brings light and luck to their livelihood. It is also seen as a good occasion to buy Gold as traditionally it is believed that it brings fortune according to Hindu beliefs.

With prices of Gold correcting back from its August peak of Rs 56,200 per 10 grams to current levels of Rs 50,000 levels now with hopes over speedy recovery of struggling economies considering the vaccine round the corner. The Vaccine news has also helped improving investors risk appetite, and hence, the safe haven appeal diminished in the short run causing the prices to come down to current levels and can be used as a buying opportunity as there are many other medium to long term factors that will support Gold prices as we move ahead.

Some of the factors that may help the yellow metal prices recovery in the near future are the weakening USD considering the new president elect Joe Biden from Democratic Party and the challenges he may face in driving policies, especially when the Senate majority is with Republicans.

The second major factor to consider is the ultra-loose monitory policy of central banks that makes money availability easier, driving inflation northward; the same may support Gold prices.

The third point can be that the mountainous debt accumulated during the last six months, dealing with the pandemic for almost all central banks except for China, is going to take some time for recovery and till then the safe haven appeal for yellow metal may stay intact and keep the investors, hedge funds and institutional participants interest intact.

Close

The fourth important point to be looked in to is the US real yields, the same has shown some improvement that led to selling pressure on Gold prices in the short term. With the current situation, we may expect the yield curve to stay flat to negative in coming days and may support prices in the long term.

The fifth and most important factor to be considered is the increase in risk appetite of investors in the US and across the globe on account of vaccine news that is driving equity markets close to their all-time highs, if the momentum fizzles out due to political instability or COVID vaccine effectiveness and reach, there as chances of investors coming back to the yellow metal as a safe haven supporting the prices.

The physical demand for Gold is also recovering as the vaccine hopes and festive demand may drive Gold prices up especially from China and Indian perspective. Fresh inflows in the form of ETF's, addition by Central banks considering attractive rates can also add support considering low prices.

Even though the vaccine news is out, but there will be logistical and infrastructural challenges that may prolong the recovery time and reach for many specially when many countries have started seeing surge in COVID-19 cases specially in the US and euro zone.

Overall, Gold still looks to be an attractive bet for investors with medium to long term view and finds support at $1850 an ounce at Comex and Rs 49,500 per 10 grams domestically. One can target levels of Rs 52,500 at MCX and $1950-$2000 again in coming 2 to 3-month time considering political uncertainty and the vaccine and its effectiveness in dealing with the increasing COVID-19 second wave.

(Sunilkumar Katke, Head - Commodity and Currency at Axis Securities.)

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Sunilkumar Katke is the Head - Commodities/Currency at Axis Securities.
first published: Nov 13, 2020 10:56 am

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