IGI Logo

Below are Views On Gold is discernibly in the grip of a classical bear phase By Mr. Amar Ambani, Senior President and Head of Research – Institutional Equities, Yes Securities

Gold is discernibly in the grip of a classical bear phase, which is prone to last for a long time frame.  For the current downcycle, this could mean a significant span of another four to five years. Our study suggests that Gold typically does well during phases of hyper-inflation or deflation and not during ordinary inflationary times.

The Covid-eclipsed year of 2020, when commodity prices were significantly depressed, temporarily raised fears of deflation, owing to the unprecedented demand shock. Consequently, Gold enjoyed a significant boost throughout 2020 as a popularly perceived fall back option. But now that the market sentiment is improving and disruption is minimal if not passe, the risk aversion tendencies are fading, so will the circumstantial craze for gold as an investment.

The Gold price of $2050 were indeed sky high but wearing off fast now. In the present environment, stocks are way better placed. Even within the commodity space, industrials appear visibly stronger, with China demand, falling inventory, global recovery prospects, as also the big EV and the renewable opportunities. Furthermore, Bitcoin to an extent has cannibalized demand for Gold, given its inherent value prop of high liquidity, secure custody and limited issuance. If speculative interest in Gold is also anything to go by, an equivalent of 200 tons of net long positions, representing 15% of open interest, have been cut. Gold holdings in SPDR Trust have also fallen to lowest level since May 2020. In fact, in local currency terms, Gold may depreciate even more if the Indian Rupee were to appreciate.

We expect a stable to gradual appreciating INR over next four years, which means lower Gold price in Rupee terms. Our target price for Gold is $1200. This is clearly an era to place one’s faith in riskier assets. ‘Golden’ times will recur for sure in the distant future but as of today, given the better opportunities in other asset classes, the conclusion seems foregone: in the safety net dictum of Gold, we trust, but any current investment into it is more likely to rust.

Above views are of the author and not of the website kindly read disclaimer