Central banks across the world are continuing to infuse money into the system to insulate their economies from the impact and the slowdown that the COVID 19 caused. But investors all across the globe are stepping up their safe-haven play by betting on the yellow metal.
The world’s largest markets, China and India, have witnessed a sharp decline in the demand for jewellery; and this has been further offset by the jump in the demand by gold ETFs.
On Tuesday, gold futures price on the Chicago exchange topped the $2,000-per-ounce mark for the first time in all of history; and the price for the precious metal in India also crossed INR 55,000 per 10 gram mark on MCX, which is an all-time peak.
Silver too, after breaking the INR 70,000 per kg mark, is also within striking distance of topping its all-time high of INR 75,000 mark.
This year, gold has risen by 40 percent, having outperformed all other asset classes substantially, except for silver which is up by 50 percent. On Wednesday, silver in the country went past the INR 70,000 per kg mark; and in the last five days, its prices have rallied over 10 percent. The hope of a stimulus and economic uncertainties are also driving the prices of these metals upwards.
Global investors have added record amounts of gold-backed ETFs to their portfolios in the first six months of the year. Inflows into these products have reached 734 tonnes by the end of the month, and this has taken global holdings to a new high of 3,621 tonnes, with AUM having hit a record $206 billion. So far, investors have put in a record $47 billion into their gold ETFs.
In comparison, the demand for gold jewellery in China was down by 52 percent in the first half of the year. In India, at the same time, demand was down by 60 percent. But in both these markets, the slide was due to COVID-19 related disruptions.
As per analysts, the rally in these two precious metals is not over yet. Positive global, as well as domestic factors, are coming together to continue the up-trend in the prices of both these metals; and slowing jewellery demand is being replaced by investor demand in ETFs, coins, and bars.
We are bullish on gold right now, and potential targets range between INR 65,000 and INR 68,000; while for silver, they range between INR 82,000 and INR 88,000 over the past one year.
Investors are recommended to continue keeping a higher allocation towards gold and to use every dip to accumulate this precious metal.