Gold is the only asset class that had an exciting year. It’s seen its value soar to an all-time high in August. After hitting an all-time high above Rs 58,000/ 10 gm, gold has managed to hold critical support around Rs 50,000/10 gm. This is an indication of underlying strength in the marketplace.
If interest rates stay low in the US as the FED has indicated, the opportunity cost of holding gold — a non-yielding asset — will be quite low. That’s because investors are not forgoing interest that would be otherwise earned in yielding assets. Moreover, Interest rates around the world are projected to remain weak for the next few years. The FED is on hold until 2023. The BoE rates are rock bottom and expected to remain so. They kicked back a little on negative rates, but that was expected. When you factor in inflation this means that real interest rates are negative. Put simply, cash loses value over time.
All of this means investors are incentivized to put their cash to work. With quantitative easing rising across the world this further weakens currencies, so a commodity like gold can gain.
It’s not just America, but the G20 countries are really implementing and practicing in many different ways this MMT — Modern Monetary Theory — of giving out money, sending out money … this is unprecedented. This is a brand new world and we’re seeing it all over. So I think that gold will have a secular bull market I think that gold will continue to grow because of this unprecedented money printing. The MMT, also the Federal Reserve, puts out lifelines to 15 different countries, helping them with US dollars.
On top of all this the current COVID-19 recessionary environment lays a solid foundation for further gold gains. In the last three recessions physical as well as digital gold has gained in value. This is a great environment for gold to prosper in. Fundamentally and technically it is hard to see a better place to buy. The fact that we pull back to Rs 52,000 and then don’t really get below that for long, I think we’re on a new technical chart now. Direction really does matter more than price targets because when it breaks out when you get a new chart like this, you just don’t know how high.
We remain bullish on Gold as nations continue to print money and devalue their currencies. The U.S. hadn’t felt the major effects of devaluation because it continues to hold the coveted reserve currency status. However, that it’s only a matter of time before the U.S. joins in the race to the bottom. If we’re looking at massive currency devaluation, you got to go into alternative assets, and physical as well as digital gold continues to look good. You need to be in something that is going to hold its value.
Another factor that will continue to support gold prices is the potential for rising inflation due to improving economic growth. We aren’t expecting to see major growth in 2021. However, a low growth environment will lead to continued government support. As money supply growth increases, so do inflation pressures. Much will depend on government stimulus, debt, and geopolitical tensions
Moreover Central bank buying, Investment demand through ETFs and Sovereign Gold Bond would continue to support the prices in future. We predict Gold prices to trade above Rs 60,000/ 10 gm by next Diwali.
We advise to buy Gold and buy Silver this Diwali in any form,
- Investible Jewellery through our Mobile App and Channel Partner Stores
- Physical bars and coins through SPOT Platform
- Digitally through Augmont DigiGold through Website and Mobile Application