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Last Updated : Dec 23, 2019 10:09 AM IST | Source: Moneycontrol.com

Gold 2019: Yellow metal set to post its biggest annual gain since 2010

In the domestic futures market, prices hit an all-time high of Rs 39,885 for ten grams in September gaining more than 25 percent.

Moneycontrol Contributor

By Hareesh V

The spot gold hit a 6-year high of $1,557 in September and is all set to post its biggest annual gain since 2010. Gold’s performance in the domestic market was somewhat different, surging prices to an all-time high of Rs 39,890 per 10 grams.

After facing significant headwinds for the last many years, gold started gaining since the start of the year. London spot prices opened at $1,282 an ounce and gradually rallied to a high of $1,557 an ounce by September.

Close

However, even though a mild profit booking was witnessed from its recent peak, it is on the track to close the year by gaining more than 15 percent.

In the domestic futures market, prices hit an all-time high of Rs 39,885 for ten grams in September gaining more than 25 percent.

Bullish overseas market sentiments coupled with weak domestic currency lifted the sentiments. A weak rupee increases the landed cost of commodities imported into the country.

A sharp rally in gold during this year as a result of feeble global economic outlook amid a trade dispute between the world’s top two economies, Brexit uncertainties, and other geopolitical tensions.

Central bank's demand, U.S rate cuts and performance of dollar also sway prices during this period. Intensifying economic uncertainties led investors to stay away from riskier assets and depend on traditional safe-haven commodities like gold.

The trade dispute that continued for the last 16 months hit the global economic sentiments adversely and fanned fears of a possible recession. Concerns over economic slowdown led global agencies like IMF to cut global growth rate for the current year and next.

Hopes of slow global growth dampened the appeal of risky assets, and investors sought shelter in bullion. As a safe-haven, gold’s demand historically has been strongly responsive to periods of heightened risk.

Central banks across the globe have taken policy easing measures to scramble their economy from the trade war fallout this year. Measures like lowering interest rates boosted gold as it decreases the opportunity cost of holding non-yielding assets like bullion.

U.S Federal Reserve cut rates two times this year amid concerns over inflation and low job growth. China cut its prime lending rates and brought trillions of Yuan into its economy to boost growth. Reserve Bank of India also reduced its key rates four times this year. These actions have lifted gold’s appeal as an inflation hedge taking prices to multi-year highs.

The unprecedented worries over Britain’s exit from the European Union have continued for the last three-and-a-half years. The delay in a decision created uncertainty across the region which led investors from taking big bets on riskier assets.

Geopolitical risks in many countries also assisted gold this year. Gold is usually positively correlated with rising geopolitical tensions.

Tensions between U.S-Iran on the nuclear deal have raised fears of a military confrontation between the countries.

Heightened tensions in the Korean peninsula, military operation by Syria in Turkey and protests in Hong Kong were the other factors that urged investors to keep their money in safe commodities.

Domestic market rates are on the way to post a fourth consecutive year of gains this year. Prices hit an all-time high of Rs 39885 per ten grams in the domestic futures market due to high overseas prices coupled with a weak Indian rupee.

An increase in import duty to 12.50 percent in the latest budget also caused higher local prices. However, domestic demand was rather steady as buyers deterred from purchasing due to record level prices.

Going forward, progress in the U.S-China trade deal, global growth outlook, and central bank actions remain to guide the direction of the metal.

Also, the performance of the dollar and demand from key consumers like China and India are the other factors that may direct the trend of gold next year.

(The author is Head Commodity Research at Geojit Financial Services)

Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
First Published on Dec 23, 2019 10:08 am
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