Global Gold prices have been on the rise since March 2020, from the lows of $1,458.8 an ounce, to the recent highs of $2,089.2, registered in August 20 this year, which is a 43.2 percent upside in just 6 months.
However, the prices have corrected marginally from these highs, and are currently trading near $1,900. We expect this bullish move to continue in gold from the current levels in the backdrop of the following points:
1) Highly stimulative monetary policies by the world's key central banks: Global Central banks are putting all efforts to support their local economies via easing monetary policies. The Bank of England has said last week that it will increase its purchases of government bonds by £150 billion, £50 billion more than investors had been expecting. The Reserve Bank of Australia cut its official cash interest rate to 0.10 percent. Meanwhile, BOJ, ECB and the FED have already cut their rates to ultra-low levels. Gold is likely to find on the back of stimulative measures and ultra-low level interest rates across the globe.
2) Low global bond yields: A collapse in sovereign bond yields after central banks slashed rates everywhere has made gold an attractive asset.
3) Low inflation and Dovish central bank policy: The IMF expects global inflation to decline from 5.0 percent in 2020, to 4.7 percent next year, and moderate to 4 percent by 2025. With inflation set to remain low, major central banks have anticipated maintaining their current policy setting until 2025. Gold is likely to benefit from this monetary policy stance.
4) Record buying in Gold ETFs: According to a WGC report, Gold-backed ETFs and similar products (gold ETFs) recorded their 11th consecutive month of net inflows during October. Net inflows of 1,022 tonnes ($57.1 billion) in 2020, so far, have driven global gold ETF holdings to a new all-time high of 3,899 tonnes ($235 billion in AUM).
5) Safe-haven demand due to COVID: Gold continued to receive support from the COVID pandemic, which has reduced global growth prospects, and is the main reason behind dovish central bank policies. Despite the discovery of a curable vaccine for COVID, it is anticipated that it may take a long period to make it available for common people. COVID cases are increasing rapidly; Johns Hopkins University's coronavirus tracker reported more than 50.2 million COVID-19 cases and 1.2 million deaths globally as of Sunday, November 8. Many European countries are moving back into lockdown, which is likely to affect global growth, and is positive for gold prices.
6) Geopolitical tensions: Many geopolitical tensions across the world are likely to provide support. US-China trade tensions may not completely disappear even after the new government takes charge in the US. Although the US is likely to shift its approach in dealing with China, however, industrial policies and allowing market access to China still looks uncertain. Other geopolitical issues related to Iran, North Korea, and Venezuela, are likely to provide support to gold.
Gold is likely to find support from stimulative government and global central bank policies, low bond yields, dovish measures by central banks on the backdrop of low inflation, investments demand in gold ETF’s, and safe-haven demand, due to COVID-19 and geopolitical tensions. We remain bullish on gold and recommend buying on every corrective dip.
(Abhishek Bansal, Founder Chairman at Abans Group.)
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.
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