Below is the Views On price outlook, drivers for gold prices, and returns analysis ahead of Dhanteras By Kishore Narne, Head- Commodities & Currency, Motilal Oswal Financial Services Limited (MOFSL).
2019 has proved to be one of the best years for Gold returns as prices have risen by 15% on domestic front, getting some support from weakness in the rupee that has fallen by 1.4% against the US dollar. Since the last Diwali gold has outperformed across major asset classes and this year return has been to the tune of 21%, with equities giving a return of 10%.
Gold prices have showed strong signs from the beginning of this year following a lot of distress related to trade war between US and China, geopolitical tension and Brexit related uncertainty. A lot of these factors lead institutions like IMF, OECD and World Bank to trim their global growth forecast not only for this year, but for the coming year as well. Central banks across the globe also turned dovish since the start of the year adding further gains for gold.
Domestic Gold demand has remained subdued for previous festivals, where Dussehra sales were 20% lower than previous year and at the same time higher prices could dent the overall demand in Diwali as well. Elevated prices and hike in import duty by 2.5% also took a hit on gold imports that were down 12% in 2019. Gold imports for 2019 have been to the tune of ~565 tonnes until September compared to ~644 tonnes in the same period last year.
Major drivers of Gold Prices
We expect that positive momentum for gold could continue further, but the pace of rally could get measured as uncertainties related to trade war is taking back seat. Brexit related uncertainty could take a pause as the deadline could be extended to January 2020. But we are of the view that this slowdown in major economies could push central banks to remain dovish for an extended period and that could continue to support gold prices. Elevated prices will remain a point of concern, but with a fair monsoon and festive season approaching it will be important to see the movement in domestic gold prices. India has also added gold to its reserves and with a dovish outlook on the economy gold could continue to outperform.
We expect that ease off in trade war could lead to some correction in prices, but until ₹35,500 is held, we remain bullish and expect it move higher to test previous highs of ₹39,500 followed by ₹41,500 over the next 12 months.
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