Economically, the world is slipping into recession according to estimates from the International Monetary Fund ( IMF) and World Bank. The ensuing economic crisis is much worse than the Great Depression of the 1930s. Economies in different nations have been contracting with productions at stand still and millions losing their jobs. Still, the one thing that keeps rising is gold.
Gold is a precious metal with which mankind has a long and very intimate relation. At a time when the Covid-19 pandemic has forced the global economy into a recession mode, why is the yellow metal continuing its dream run? Will gold prices keep the upward trend going? Many investors are worried about the unexpected rise in the price of gold. Will they have to invest in gold at these high prices?
The current Indian gold prices are even higher, as during the same time they jumped from around Rs 32,000 to nearly Rs 50,000 per 10 grams, a return of almost 56 percent. In India, the world's second-largest gold user after China, gold prices crossing Rs 50,000 per 10 grams after nine years as several factors such as global uncertainties caused by the Covid pandemic, weak dollars, low-interest rates, and stimulus programs have increased the demand for gold. While physical demand for gold is close to zero amid the nationwide lockdown associated with corona virus, yellow prices have seen a sharp rise in recent months.
There hasn't been much cheer in the last few months with the corona virus leaving most economies scrambling for air, except for the price of gold that has hit the roof-crossing Rs 50,000 / 10 grams.
Reason for rising-:
Economic slowdown which causes investors to seek safe havens
Since March 2020, most countries are in nation wide lockdowns to curb the spread of COVID-19. While this brought the disease spread under a fair amount of control, it also caused significant economic damage as industries were shut, interest rates slumped and several investors began moving away from risky assets, which increased the gold appeal for a safe haven.
In March, however, lockdowns had begun. Why are gold prices now on the rise?
Initially, investors hoped that, when the lockdowns were lifted and firms resumed operations, the economy would rebound rapidly. And so, a lot of investors began purchasing undervalued, high-quality stocks. Over time, however, the expectations of a near-term recovery were dampened, and investors began to look to their funds for a safe haven. As gold is regarded as perfect protection against inflation and economic instability, the demand for gold has increased.
Until August 31, 2020, the RBI allowed borrowers to make use of a moratorium on loan repayments. The Government has announced a tonne of packages of economic stimulus to inject money into the markets. So, we had a situation where investors had money to spend, but there was a highly volatile stock market and dropping interest rates. Therefore, during such periods, they began investing in gold, which is considered to be a secure investment.
Should you invest in gold now?
Though recent gold price news indicates strong demand for the yellow metal, some analysts also expect gold prices in the next two years to hit Rs.65000 per 10 grams. They assume factors such as low-interest rates, high liquidity, and the lockdown's economic effect would have a lasting impact on the markets and therefore determine gold price patterns. If a vaccine is introduced or the number of cases is brought under control, they still expect the demand for gold to continue to increase. Gold will be seen as a core element in the majority in investment portfolios between 2020 and 2021. The psychological effect of the pandemic could keep investors interested in the yellow metal for a long time, even if the vaccine is implemented. Gold will regain its position as a strategic asset and many investors will try to take advantage of the positive momentum in prices. With prices rising, investors have adopted gold as a primary portfolio hedging strategy in 2020. The pandemic would likely have a lasting impact on asset allocation, irrespective of the form of recovery. The importance of gold as a strategic asset will also continue to be strengthened.
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