IGI Logo

Gold’s volatility in CY2021 until now has been no less than any ride in an amusement park. After a good rally last year, we witnessed some profit booking and consolidation at lower levels amidst the US Presidential election uncertainty, vaccine reports from various pharma companies and volatility in dollar and yields. This led to some profit booking in ETFs and CFTC positions suggesting that speculators too unwinded their positions hence affecting the overall sentiment. Although, with all these uncertainties, precious metal pack were backed by strong fundamentals which kept the hopes high for all bulls.

While we talk about the pandemic and bullions fundamentals, it is hard to forget the supply and demand dynamics that have been changing due to the measures the government announced in these times. The year 2020 started with prices at peak as there was ample demand and not sufficient supply. Physical market was hit, amidst the pandemic, stores were shut and market participants could not go out and buy or recycle their gold. On other hand, with less gold recycling and mines taking a hit, overall supply was in question.

Talking about demand and supply numbers in Q1, according to WGC strengthening consumer demand mitigated the impact of ETF outflows as global economies continued to recover. And total supply fell 4% in Q1 despite increased mine production. Jewellery demand of 477.4t was 52% higher YoY. The value of jewellery spending was the highest for a first quarter since Q1 2013. Bar and coin investment of 339.5t (+36% YoY) was buoyed by bargain-hunting, as well as by expectations of building inflationary pressures. Growth in consumer demand was offset by strong outflows from gold-backed ETF, which lost 177.9 in first quarter. Q1 saw continued healthy levels of net buying by central banks, where global official gold reserves grew by 95.5t, 23% lower YoY, but 20% higher QoQ.

In 2021, pandemic struck again and a lot of economies announced stricter restrictions that led to safe haven buying in the precious metal pack. COVID cases are still on the rise in India and pandemic fears still hovers the market, but the situation is a bit different from last year. A complete lockdown is not yet announced pan India, there are a few restrictions, but the demand supply dynamics are different from the previous year. Also, import duty cut was declared earlier this year in the Union Budget announced by the GOI, which also weighed on the prices and encouraged jewelers to import more. The effect of the same can already be seen as the March import number was reported at 160T which is almost ~470% higher than the previous year. Strong fundamentals is helping gold gain momentum and is justifying our bullish stance that we have been maintaining for more than a year.

As we talk about demand supply dynamics & festive season, Akshaya tritiya aka Akha Teej, an annual spring time festival of the Hindus and Jain is approaching this week. Gold’s demand increases more during these festivals and looking at the import numbers, same is expected this time too. Yes, there is definitely a concern of restrictions that are re-imposed in almost all parts of the country although the lockdown situation is better as compared to last time. Also, with physical gold there are many platforms like Online gold (Me-gold), ETF’s, and others which market participants can select depending on their risk.+

Historical Comparison As we can clearly see from the chart, gold price have increased during this festival; there are only fewer cases where the prices have consolidated or traded sideways. Going with the historical trend, and the current fundamental and technical set up, the prices could maintain the upside momentum.

Is it a good time to buy gold?

There are factors that the market participants are watching cautiously like falling Dollar, higher US treasury Yields, ETF demand picking up and falling global interest rates. Although, Central Banks have continued to maintain a dovish stance, interest rates are near the lows. Now that Central Banks have started to buy again we expect that higher numbers in the future are likely to keep prices elevated. Rising Coronavirus cases, continuous liquidity injections, rising inflationary expectations, economies growing on the back of debt, Middle east tensions, trade war between US and China and few other factors continue to boost the sentiment and build a strong case for higher gold prices.

On the back of these above mentioned uncertainties, we continue to maintain our bullish stance on Gold. Prices have consolidated over the last few months and recently caught up some momentum and back to around $1800 on the COMEX where we are comfortable suggesting buying for a short to medium perspective targeting new life time highs towards $2050 followed by $2200. On the domestic front, the post budget prices correction is a good level to enter once again for and immediate targets towards Rs.50,000 and eventually hitting new highs of Rs.56,500 and above over the next 12-15 months.

To Read Complete Report & Disclaimer Click Here

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