Despite volatility, gold on course to log gains in medium term; here's why

A crisis often leaves us wiser while shaking up some preconceived notions along the way.  The coronavirus outbreak, for instance, has changed investing strategies for gold.

For long, people who invested in gold were considered orthodox investors with low risk-appetite and the ones who always expected the worse. They used gold as a hedge against any financial calamity.

As the coronavirus batters economies across the globe, gold has stood firm, barring occasional volatility, to emerge as the best performing traditional asset in the world.

After Russia approved a vaccine for COVID-19, gold saw panic selling as investors assessed the prospects of other asset classes. The yellow metal slipped from an all-time high of Rs 56,000 to below Rs 50,000 per 10gm.

But things don't change overnight, and for equities, it takes even longer.

Volatility may continue

Given its sharp rally in the last few months, a correction was due in gold prices, say.

On the Multi-Commodity Exchange (MCX), October gold contracts were trading lower by 0.07 percent at Rs 52,218 per 10 gram at 0915 hours. The metal may continue to see volatility but buying on dips is a smart strategy, analysts say,

“Higher than expected US CPI and Core CPI data, weakness in the dollar index and varied voices on Russian coronavirus vaccine supported precious metals at lower levels. We expect both the precious metals to remain volatile in Thursday’s session,” Manoj Jain, Director (Head - Commodity & Currency Research) at Prithvi Finmart told Moneycontrol.

“We suggest buy-on-dip in both the precious metals as weakness in the dollar index continues to support precious metals at lower levels,” Jain said.

Remain invested in gold

Concerns over a widening US-China rift, a sharp increase in coronavirus infections and economic uncertainty continue to remain a threat to equities, supporting the bullish story of gold from a medium-term perspective.

Investors will shun gold and rush to other asset classes only if macroeconomic indicators turn green.

For this to happen, a COVID vaccine is vital. Besides, stimulus by governments and easing of tensions between the US and China may soften gold prices.

"Availability of the vaccine, next stimulus package by the US government, tensions and tariff war between US and China and the ability of governments to control the number of cases will guide the future course for gold," said Nish Bhatt, Founder and CEO, Millwood Kane International. Until them, gold will continue to march upward.

"The yellow metal loves uncertainty and in the current scenario, there is plenty of that around the world. So, the gold remains unquestionably supported by a high influx of geopolitical risks and monetary liquidity," said Rahul Gupta, Head of Research - Currency, Emkay Global Financial Services.

"As long as there is no COVID-19 vaccine or any development over coronavirus vaccine, the trend will be bullish. The uncertainty over the US-China trade war, more stimulus measures by both Fed and US administration and US Presidential elections will also support the gold marathon," he added.

Disclaimer:The views and investment tips expressed by 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.