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Gold loses its shine in 2021

Gold has been a portfolio diversifier in long term time frame as the returns in gold balances the overall risk reward for any investor. Looking at the chart above, gold has performed in double digits for most of the past 8 years, starting from 2014 to 2021 YTD.

However, the return in 2021 has not been in favor of investors. There are lot of factors at play in the yellow metal market at present and the current dynamics of Central Banks and their monetary policy will play a crucial role from here on that will decide the trajectory of gold prices in the year ahead.

Gold demand remains high in India

Stronger dollar, rising global equities, increasing vaccination rates, falling COVID-19 cases , possible winding up of easy monetary policy in the US, and possible divergence in other central bank policies, optimism across global markets have been at the helm for the gold as an asset class as a revolving factor, which has led to the fall in gold prices in 2021 YTD.

On the contrary, the drop in the price of the yellow metal in 2021 has been a boon for Indian buyers of gold as forecast from the World Gold Council indicates that India's gold demand could strengthen significantly in the fourth quarter. Demand for the precious metal usually spikes towards the end of the year in India, as buying gold for weddings and major festivals such as Diwali and Dussehra is considered auspicious.

In a report published recently by the World Gold Council, it said gold demand in India jumped 47% in the third quarter from a year earlier to 139.1 tonnes as jewellery demand surged 58% to 96.2 tonnes. On the other side, the global gold demand has been 9 percent lower YTD.

A doubling of central bank buying and 50% growth in jewellery demand over the first three quarters only partly offset the decline in ETF demand. Y-t-d demand remains notably weaker when compared with the same pre-pandemic period of 2019. Moreover, Small outflows from global gold ETFs (- 27t) looks very meager, given the hefty Q3’20 inflows of 274t.

IMF says, global economy to recover in 2021, and fall in 2022

The optimism across global economy is visible in the growth projections made by the International Monetary Fund in its recent October released report. Global economy is expected to grow at the rate of 5.9 percent in 2021 and then to 4.9 percent in 2022.

Our advice to investors is to purchase gold this Diwali as it is advisable to divest at-least 10 percent of ones portfolio in to gold and Diwali is an auspicious occasion to buy the yellow metal. The growth path remains divergent across the developed and the developing economies and so is the case with regards to the vaccination programmes. Till the time, the central banks globally do not converge on raising interest rates, gold prices will have a stronger run in a year time frame.

We expect gold prices to move higher towards Rs.54000/10 gms till next Diwali and investors are advised to take dips as an opportunity to accumulate the metal.

Whatever is the scenario, the gold has been a go to asset class for investors in times of uncertainty and if one wants to benefit from the diversifying in to gold, there are various ways to accumulate gold in India.

* Buying Physical gold- Jewelry, ornaments, coins, bars

* Sovereign Gold Bonds – Safe option to invest in gold, for longer term. Gives interest rate of 2.5% per annum

* ETF’s- Exchange Traded Funds are for those investors who are looking at divesting in gold as well as looking at liquid ways of investing in gold

* Gold Mutual Funds- These options are for those investors who want a convenient way of investing in gold via- SIP route.

MCX GOLD – (CMP – 47800 / $1795)

As seen in the Quarterly price chart of MCX Gold, in 2021 after making up the lifetime high in gold price at 56,191 levels. From the March quarter, we witness a sharp correction in the Gold Price to 43,320 (22.91%). Later on, the rest of the quarterly price moment was in a narrow range between 44400 to 50200. In the year 2021 prices had made a high of 51,875 levels and low of 43,320 levels.

The long-term trend of Gold is still positive. A year on year, prices have formed “Higher Top and Higher Bottom Formation” which is basically a positive chart structure. As per the longer-term standpoint, International gold markets seem to be supported heavily at the $1700 level, and therefore it's a floor in the gold market.

Technically prices are trading above their 10, 30, 50 EMA (Quarterly basis), which is positive for an uptrend. Indicators on board, RSI (Relative Strength Index) value 72 into the overbought area and developed the negative diversions. The MACD histogram is printing in positive territory with an upward sloping trajectory which points to higher gold prices.

Till next Diwali, we expect Gold prices to find support at 42,300 – 41,100 Levels. Trading consistently below 41100 levels would lead towards the strong support at 35,700 levels and then finally towards the major support at 29,500 levels. Resistance is now observed in the range of 53500 – 54200 levels. Trading consistently above 54,200 levels would lead towards the strong resistance at 62,500 levels, and then finally towards the major resistance at 67,000 levels.

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