Gold, the so-called safe haven, has seen tremendous demand globally as novel coronavirus hit economies hard and forced them to shut down for couple of months. As a result, monies or focus has been shifted to yellow metal from risky assets like equity.
The gold prices gained 25 percent in the domestic market in the first half of CY20, the highest since 2011, which was much better compared to equity markets. The BSE Sensex and Nifty50 rose over 15 percent in 1HCY20.
In fact, MCX Gold continued to rally for 7th consecutive month and the commodity hit an all-time high of Rs 48,982 per 10 gram.
Can the yellow metal cross Rs 50,000?
Gold has strength to cross Rs 50,000 per 10 gram, only if the second wave of coronavirus gets stronger, economies opt for another major lockdown and geo-political tensions spike, but given the further progress in vaccine, countries restricting lockdown to containment zones only instead of nationwides and the rally in equity markets, the yellow metal is unlikely to see Rs 50,000 mark in the short term, instead it may consolidate for some more time, experts feel.
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"No, we don’t expect it rally towards Rs 50,000/10 gram, instead we see a small reversal and some profit-booking may take place as risk appetite is picking up with nations easing the lockdown and governments and central banks providing stimulus to support economies," Rahul Gupta, Head of Research- Currency at Emkay Global Financial Services told Moneycontrol.
He feels currently the recent high is acting as a crucial resistance and we may see small correction in prices till Rs 47,500/47,000. "RSI indicator is also hovering at around 88.8 which is in overbought position also indicates that there is space for gold prices to come down."
According to him, if the ongoing geopolitical tensions around the globe or any negative news regarding coronavirus turn bad, then it will boost safe-haven demand for gold. "Once it crosses and sustains above Rs 49,000 then only Rs 49,750-50,600 is expected."
Ravindra Rao, VP - Head Commodity Research at Kotak Securities also said currently, countries were imposing restrictive measures which are more localized in nature and this has kept market players hopeful that lockdowns may not take place. "However, this situation could change soon if the virus outbreak intensifies further. Overall, gold has enough ammunition to test fresh all-time highs but it may not come if equity markets continue to outperform."
What are triggers to watch out for second half of CY20?
Experts feel coronavirus will remain a big trigger behind the investors' focus which has slowly been shifting from risky assets to risk free assets as global economy is expected to shrink further in 2020, relations between US and China has not been seeing any chance of improvement etc. In addition, countries are expected to pump in more money to support economies which may ultimately drive the rally in gold only, they said.
"COVID-19 will remain a major trigger as it is becoming difficult to curb its spread, so a quick vaccine news may change the whole scenario or the delay may further add pressure on the economies. Additional stimulus measures by central banks in coming days and months may devalue the currency and may support the gold prices. Riskier asset classes performance will also remain a major trigger in the next six months," Sunilkumar Katke, Head - Currency and Commodity at Axis Securities said.
Rahul Gupta said especially during unprecedented times, investors around the world are seen shifting their investments to risk free assets such as government bonds, gold and so on, from riskier assets.
"And the recent time is not different, there is a lot of uncertainty in the global economies caused by the COVID-19 pandemic. The COVID-19 has made the markets even more unpredictable and volatile in many respects. The coronavirus widespread has put global growth is in doldrums," he added.
IMF has downgraded its global economic forecasts for 2020, and predicted a much deeper recession and slower recovery than originally expected. The fund forecast that global GDP will contract by 4.9 percent this year, from its previous estimate in April when it projected GDP to shrink by 3 percent.
Meanwhile, the relations between US and China have soured badly in the months since the 'Phase one' trade deal was signed in January.
"Other topics to be highly considered are the ongoing Brexit talks, which has yielded no progress. If the UK cannot agree an extension this month, or agree a trade deal with the European Union (EU) by the end of the year, the UK and EU will be facing the no-deal which has so badly influenced the pound in recent years, often triggering weakness and the sale of riskier assets," Rahul Gupta said.
"Also, markets will start to pay more attention to the rapidly approaching US election," he added.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.