Gold is likely to lead to a downward drift in prices towards levels of close to Rs 37,500-37,000 per 10 grams.
Amidst this global disruption and vertical declines in almost all asset classes caused by the coronavirus-induced crisis, even the most favoured asset of this year - gold - has not been spared.
Earlier, concerns about the economic blow from the coronavirus acted as a catalyst behind the stellar rally in gold for the year, where prices at the beginning of this month soared to seven-year highs at COMEX and record highs of close at Rs 45,000 per 10gms at domestic bourses, owing to the steep decline in the domestic currency.
Investors were seen fleeing away from risky assets and flocking on to the safety of gold, which remained in limelight amid the dark clouds of uncertainty enveloping the global economy. But, eventually, the heightened volatility in financial markets and its ripple effect pushed investors to liquidate their positions, even in gold amid a massive wave of exiting leveraged positions, and scramble for cash.
Gold seems to have fallen prey to the "Ides of (leveraged) March", losing almost 12% from its highs seen earlier in the month, even though the fundamental drivers still remain positive. Amidst this mayhem and concerns of the global economy being pushed back into recession, money was only seen chasing the dollar, the global reserve currency, which has soared to three-year highs.
To arrest the incessant declines in asset prices, many central banks and governments have proactively come out with several monetary and fiscal stimulus measures to boost liquidity in the markets and help their economies weather the economic toll from the virus.
Ranging from the PBOC, US Fed, ECB, BOE, BOJ, and Bank of Australia - all of them are taking unprecedented steps to shore up their economies, but still, these measures seem to have fallen short in soothing market nerves.
Heading back to gold, prices seem to remain in a corrective stage at least from a near term perspective. As long as the precious metal is not able to nudge past the immediate hurdle of Rs 41,500 per 10 gms mark (or $1,570 per ounce), this current rough terrain will stretch further. It is likely to lead to a downwards drift in prices towards levels of close to Rs 37,500-37,000 per 10gms ($1,370 per ounce), a strong cushion area from where it will again forge ahead on the uphill journey.
As the dust settles and the coronavirus imprints fade away, gold will be back in demand.
The landscape of ultra-low interest rates, along with the economic disorder caused by the Covid-19 virus would eventually make gold; a traditional safe-haven asset, quite attractive at lower levels.
Rather, once this corrective phase is over, it should be construed as an opportunity by the investors to accumulate gold from a one-two year’s perspective. After all, it has stood the test of time as a wealth creator.
(The author is VP-Metals, Energy & Currency Research, Religare Broking)Disclaimer: The views and investment tips expressed by investment experts 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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