Has gold really been the safe haven asset? Has gold really proved to be a hedge in times of uncertainties? Has the yellow metal been the highest return generating asset in its class?
So let’s see what gold has done since 2001. I have always been telling people to buy gold on dips. In 1981, after gold had made its top above $800 it was pushed back in to the bears market where in it plunged to about @250 by 2001; at that time no one even wanted to hear the word gold. People were shifting focus to other means of investment. But I was quite sure that gold was here to stay and it will soon shift its sentiments to bullish. And it happened. I was expecting gold to enter the bulls markets after a 20 year period. Targets were $3000, and currently it doesn’t seem to be a far reality.
The gold price tends to rise in times of crisis and as of now, the yellow metal has the potential to go much higher even without a major calamity.
Later then, gold will become the most desirable asset when the central banks restart their QE (quantitative easing) programs in order to avoid devastating recessions. The purchasing power of money will be eroded significantly.
Precious metals enjoyed their second biggest inflows ever in the week to Wednesday, Bank of America Merrill Lynch said on Friday, as festering trade tensions and global growth woes triggered a rush for safe haven assets.
This quarter too we saw gold running over the bulls. Gold had a good third quarter, rising 8%. 2 factors that suggest, gold may be set for further rises in the immediate future
Demand- We all know that China and Russia have been the biggest buyers of gold in the past decade. On a quarterly basis, central banks increased their purchases of gold immensely in the first quarter of 2019.
The World Gold Council reports that the first quarter of 2019 purchases were the highest in 6 years, rising 68% above the year-ago quarter.
Early this year the World Gold Council reported that central banks around the globe bought the most gold in 2018 on over 51 years. According to the report, last year central banls bought 651 tonnes (metric) of gold. That is an increase of 74% from 2017.
What can be noted further is that India that was once the biggest consumer of gold, will also be seen buying the yellow metal. But the demand is expected to come not from the central banks, but from the locals. The monsoon this year in India has been higher than usual. This leads to a series of events that will further boost agricultural income and this drive increased purchase of gold.
Furthermore in China, forward contracts have surged to record highs on the Shanghai Gold Exchange and there has been a build-up in China gold ETF holdings since late May.
Tight the unfavorable duty structure in India has not really been helpful in boosting gold demand, but analysts in the market feel that this issue has been boo timing out and a turnaround is soon expected.
Similarly physical demand in China has been lackluster due to high prices. But that too seemed to be fading away, where rise in demand is soon to be witnessed in the Chinese markets too.
Uncertainties- US and China are expected to hold trade talks on 10th October. Simultaneously Iran is also attempting to have talk initiative with the US but the latter is denying all kinds of talks with Iran s of now.
Thought most banks in China will be shut due to Chinese national holiday, this whole week markets will witness Trump’s impeachments dilemma on one hand and Brexit on the other. Nonetheless these uncertainties will help in evolving the markets.
A noteworthy point is that, worldwide money printing triggered by attempts to stimulate economic activity could lead to a substantial gold price increase.
But one thing that cannot be ignored is that as of now one should wait to buy gold. With bullish sentiments at extreme high levels, I think that this is probable not the best time to buy the yellow metal. We will surely witness some dips and that would be the right opportunity.