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Gold price seen clocking more gains after yellow metal surges to record high

As gold is seen as a safe investment during volatile times, experts suggest that the precious metal may witness strong upside momentum in the near term as well.

Rupa Burman Roy | April 14, 2020 | Updated 18:02 IST
Gold price seen clocking more gains after yellow metal surges to record high
In fact, the price of yellow metal surged to record highs on Monday amid coronavirus related economic worries worldwide.

Gold price in domestic and international markets is likely to see strong bullish momentum in the near term as coronavirus crisis roils global markets.

With the country entering the 21st day of a nationwide lockdown to curb the spread of the coronavirus (COVID-19) pandemic, market experts believe that the demand outlook for the precious metal looks quite strong.

In fact, the price of yellow metal surged to record highs on Monday amid coronavirus related economic worries worldwide.

CME Spot gold futures rallied to a fresh eight-year high of $1,754.50 per ounce, having touched its highest since November 2012. Spot Gold closed at $1,714 per ounce yesterday after hitting a new 52-week high at $1,724.75.

Tracking gains from international markets, Multi Commodity Exchange (MCX), May Gold contracts closed 2.07% higher at Rs 46,215 per 10 gm in yesterday's trade, after surging to a lifetime high of Rs 46,360. MCX Gold prices were unchanged today as the commodity markets were closed on account of Ambedkar Jayanti.

The panic sentiment in financial markets due to the pandemic since early 2020 has pushed the price of yellow metal. Since the mid-December lows of $1,350, gold prices have almost risen 30%, when China was slowly becoming a hotspot for coronavirus cases.

"An increasing economic impact caused by COVID-19 has been attracting gold as safe-haven buying. The rally in the Indian market was limited due to limited trading sessions during the week as well as market participants took cautious approaches as the demand in the retail space was subdued. As a result of higher prices and low demand, gold is being offered at the biggest discount in the physical market," Karvy Stock Broking said in its weekly report.

Besides this, the long-term outlook for gold has been also positive from the start of the year, as the risk-haven asset is expected to rise over geopolitical tensions. Given the uncertainty over the economic impact of the coronavirus pandemic, MCX gold has risen 12.26% in one month, 14.53% in 3 months, 19.68% in the last 6 months and 42.16% in 12 months.

"Gold futures at NYMEX cracked the $1,700 ceiling, scoring more than 8 year-high and at MCX passed Rs 45,000 mark surging to all-time high this week amid global anxiety over the Covid-19 pandemic, the prospect of a sharp recession, an extended period of low-interest rates and big increases in government borrowing," said Religare Broking' Metals and Energy in its weekly report on April 8.

However, gold steadied last week and witnessed a mostly mixed performance, with COMEX gold down 0.6% and at MCX up 0.41%, as per Religare Broking' Metals and Energy Weekly Report. It added that the price action reflected the sideways to lower performance of equity, while gains were capped by renewed demand for the US Dollar.

As gold is seen as a safe investment during volatile times, experts suggest that the precious metal may witness strong upside momentum in the near term as well.

'Massive amounts of stimulus are effectively diluting currencies so gold demand is coming from all directions,' said SMC Global in its research note and added, that the bullion counter may continue its upside momentum as widespread coronavirus pandemic is causing safe-haven demand.

'Gold prices (MCX Gold) expanded 26.1% YoY and 7.3% sequentially', said Motilal Oswal in its note and added that Non-agri commodity basket, barring gold and PFAD(Palm Fatty Acid Distillate), sees deflation.

With the country entering the 21st day of a nationwide lockdown to curb the spread of the coronavirus (COVID-19) pandemic, market experts believe that the demand outlook for the precious metal looks quite strong. Meanwhile, Prime Minister Narendra Modi addressed the nation and announced the extension of the virus-induced lockdown till May 3 2020, which has severely damaged economic activity and left millions out of work.

As per commodity experts, the outlook for the metal also depends upon the decision-makers staying ahead of the rapidly spreading pandemic and providing necessary actions to curb the same globally.

Hareesh V, Head Commodity Research at Geojit Financial Services, said, "Large scale quantitative easing measures taken by various central banks have lifted gold higher.

He added, "Investors' demand for safe havens due to fears of a global recession amid the negative economic impact of COVID 19 will also support the yellow metal. At the same time, moderate physical activities and a strong dollar may limit major gains."

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