We are expecting that the international gold is likely to trade in the range of $1,350 - $1,600 per troy ounce in the next one year while silver is expected to trade in the range $16.20 - $20.00 per troy ounce
After a negative closing in the year 2018, the global gold market has been witnessing a bull run since the start of 2019. The year 2019 has been the year of bullion for the global commodity market wherein gold and silver prices staged a strong rally.
Gold has received safe investment boost from a host of events that took across the globe such as extension and intensification of Sino-US trade, geopolitical tension in the Middle East, the US sanction of Iran, Nigeria and Venezuela, an extension of trade dispute of the US with European, Mexico, and India.
Weakening of the global economic condition also attracted increased investment into the bullion market in general and gold in particular. As a result, the CME gold prices surged by 22.24 percent since closing on Muhurat trading in 2018 i.e, on November 7, 2018, while silver gained by 22.10 percent in the same period.
On the domestic market, MCX gold futures gave a return of 21.41 percent since the 2018 Muhurat trading day, and silver surged by 20.22 percent. Diwali 2019 is bringing cheers to the global bullion market by giving more than 15 percent returns since start of the year 2019.
The International Monetary Fund has lowered the global economic outlook through its quarterly reports. In its April World Economic Outlook report, IMF lowered the global growth forecast to 3.3 percent for 2019 from 3.6 percent in 2018 and for the year 2020. The projections were made at 3.6 percent.
These projections were further lowered by 0.1 percent to 3.2 percent for 2019 and 3.5 percent for 2020 from April forecast. in the latest World Economic Outlook report released on October 15, the growth projection for 2019 kept at 3.0 percent, and it is projected at 3.4 percent for 2020.
On trade-related activity, the US and China kept on retaliating on each other by imposing additional tariffs on import of goods and services. There were several rounds of discussion took place at different levels including the meeting between US President Donald Trump and Chinese Premier Xi Jinping.
However, both the sides failed to end the more than one year and a half trade dispute. Though there was temporary relief in the form of delay in imposition of additional tariff, the agreement between both the countries to buying each other’s products and services did not really have major impact on the market.
Since the economic condition was worsening, the central banks stepped into to bring the economy back onto growth trajectory through easing monetary policies. At the beginning of 2019, the US Federal Reserve was on the course to keep its interest rates rising.
However, the stance was changed in the second half of the year wherein it slashed interest rate by 25 basis points each in July and September. This has resulted in fall in the US Treasury Yield of two-year and 10-year to multi-year lows thereby attracting investment flow into the bullion market. Along with US FOMC, other central banks also adopted dovish stance on their monetary policy and few of them slashed interest rates.
Since Indian gold market follows the trend of international market, the rally seen in global market was reciprocated into Indian market. The gold in international exchange rose to six-year high in the year 2019 while, on MCX, the prices rallied to all-time high thanks to the depreciation of Indian Rupee against the US Dollar.
Apart from this, another factor that led to rally in Indian gold was the change of import duty on gold. During her maiden budget speech for the Modi 2.0 government, Finance Minister Nirmala Sitharaman raised the import duty on gold and silver import to 12.5 percent from earlier 10 percent. This rise in import duty sent shocking signals to the Indian bullion market wherein the market participants were expecting cut in the import duty.
As the economic outlook is still looking bleak for major countries, which is prompting the central banks to step in to further ease the monetary policy. This will attract further buying in the gold and silver in the days to come. The recovery in the global economic conditions, as well as the end of the trade war between the US and China, will change trend in gold and silver.
The positive trend in gold and silver will remain intact in the medium term. We are expecting that the international gold is likely to trade in the range of $1,350 - $1,600 per troy ounce in the next one year while silver is expected to trade in the range $16.20 - $20.00 per troy ounce. On the Indian market, the MCX gold trading range is Rs 35,000-42,000 per 10 grams, and silver is Rs 40,000-54,000 per kg.
(The author is Head - Commodity Research at Karvy Comtrade Ltd.)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.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.