Gold prices have rallied 28% in rupee terms in 2020, making the less risky asset, one of the most preferred ones by investors this year. Spot gold overseas is positioned to end the year 20% higher year-to-date.
The coronavirus pandemic and the unprecedented flow of money supply by government stimulus triggered sharp buying in the bullion metal in both domestic and global markets in 2020, taking the gold price to an all-time high.
Led by risk aversion, safe-haven buying, and uncertainty caused by COVID-19 disruptions, Gold Futures moved to an all-time high of Rs 56,191 per 10 grams at MCX, rising by almost 43% in the year, while silver had edged closer to Rs 80,000 per 10 gram. Spot gold hit $2,075 an ounce in the international market in August.
Initially, gold prices had plunged amid economic uncertainties arising out of coronavirus pandemic. Spot gold had hit a seven month low in March.
Currently, gold trades near Rs 50,000 per 10 gram in the futures market while silver at about Rs 68,500 per kg.
The break in record rally in gold prices has been effected by Covid-19 vaccine news that impacted prices since mid-November. Due to high money rotation from gold to risky assets like equity in the last few months, gold prices have fallen nearly 10% from their record high level, achieved in early August.
According to analysts, with gold rates now off from all-time highs, the gold value will see further rise amid expectations of fresh stimulus measures and a weaker US dollar.
The dollar, which is already in the middle of a significant devaluation, is expected to weaken further on the back of additional stimulus.
Religare Broking believes gold prices can even scale higher towards Rs 65,000 per 10 gram in 2021. As per the brokerage house, the average returns turned out to be superior to inflation figures, which make gold a steady investment as well as a perfect hedge to preserve the purchasing power of a currency.
"As long as the counter is placed above the mentioned support area, long term structure looks positive where one can expect an upside move towards Rs 53500 per 10 gram initially and then towards Rs 60500 per 10 gram in the medium-term," the brokerage firm said.
It added," Gold has a track record of generating steady returns over various time periods. If we look at the historical data, gold has delivered 13.37 percent annualised CAGR return over the last 15 years, 9.22 percent for the last 10 years, 14.96 percent for the last 5 years and 19.75 percent for the last 3 years. Considering the fact that gold is an evergreen asset, anytime is a good time to buy Gold !!."
Prof Arvind Sahay, Chairperson, India Gold Policy Centre @ IIM Ahmedabad said, "Gold prices in top 17 consuming countries are higher by 22% on average, varying between 13% to 60%. We think gold prices still have scope to increase by 20 to 25% in 2021-22 in a certain scenario. In this scenario, interest rates in the dollar and Euro zones continue to remain soft, trade frictions continue to simmer between the US and EU on one side and China on the other, geopolitical tensions and technological rivalry over semiconductors ratchets up a notch or two, Covid -19 cases continue to rise and the vaccine does not perform as well as expected for another 6-12 months, new stimuli get announced and bitcoin gets even more volatile."
He also highlighted the trend across the global markets for Cryptocurrencies and their surge and said, "With the design of BTC meaning that only 21 million can exist and 18.5 million already having been mined, current trends suggest a further rise in BTC price. Since many institutions are now buying BTC as a part of their asset allocation, the question is what will be the allocation. The shift of liquidity to different asset classes (BTC amongst those) has kept gold prices range-bound recently."
"As a new 'normal' is yet to be established in the financial markets (what will be the "new" benchmark for PE ratios on the Dow, Footsie, Dax, NSE and HangSeng?, What will be the scale of money flows between markets of the $10 trillion fiat money that has been released), there could be some systemic risks looming, which may provide support for higher prices for gold. If on the other hand, if the above-stated uncertainties mitigate and come down substantially, then one may see gold prices as being essentially flat for the next 6-12 months," Sahay added.
HDFC securities Senior Analyst (Commodities) Tapan Patel also suggested gold prices to rise in 2021 in India as it received additional support from rupee depreciation against the dollar during the year. The spot rupee was down by around 3% year-to-date.
Credit Suisse expects the yellow metal to keep moving upwards and average $2,100/ounce in 2021, peaking at $2,200/ounce in the July-September quarter. The brokerage house, however, lowered its projection from its previous estimate of $2,500/ounce.
Axis Securities kept a Neutral stance on gold, while Kotak Securities does not expect a sustained rise in the yellow metal, on the back of ETF outflows and stimulus expectations in the near term.
Meanwhile, silver has logged about 50% gain so far this year. As per commodity analysts, Silver and Platinum are leading gold and should outperform gold in 2021.
Anuj Gupta- DVP- Commodities and Currencies Research, Angel Broking said he's expecting silver to shine more than gold in 2021. " We are targeting $35 to $40 levels in silver in the year 2020. On the domestic market, we are targetting 75,000 to 80,000 levels in silver."
"Silver stands to benefit from improving industrial demand as governments invest in infrastructure spending to stimulate economic growth after the pandemic. Industrial metals will give more momentum in the year 2021 in which silver and copper are on top in the industrial metals list. Silver is a key component in the solar industry, which is poised for big growth. Solar investments account for 18% of silver industrial demand and about 10% of overall demand for the metal," he added.
Geojit Financial said in a note," Recovery upticks in silver may continue while global prices stay above $25.50 However, consistently below $25 may reverse the momentum and take prices lower."