In the last quarter of the 2019 calendar, the world economy had just started to drop some green signals in the middle of the first phase of the trade agreement between the United States and China. And the markets were expecting more strength in riskier assets and a short break from buying safe haven gold.
However, buoyancy was short-lived due to the coronavirus epidemic in China and the rapid spread of the virus to other countries. This health hazard created an emergency not only in China, but around the world. Commercial activities have ceased in many parts of the world for fear of a further spread of the virus, which has an immediate negative impact on economies and, ultimately, on financial markets. This triggered the purchase of safe haven bonds, dollar indices and gold.
On MCX, gold saw a huge jump and hit a new high of Rs 43,788 from the low of around Rs 39,000, just a few points from the level of Rs 44,000. In the international markets, the yellow metal reached a peak of around $ 1,692, a level never seen in the past seven years. Speculative investors are also rushing into safe haven assets, increasing net long gold positions to the highest ever recorded since 1993, according to the latest data from the CFTC.
Frequent revisions to GDP data and various estimates of economic data have further strengthened the yellow metal. Expectations of further central bank monetary easing globally in response to the economic impact of the virus continue to support gold. In addition, the deterioration of currencies by the world central banks, extremely low to negative bond yields and persistent geopolitical tensions will create this cushion on gold prices and will not let them fall below the key support, near $ 1,520. .
However, gold prices collapsed on Friday with stocks, which analysts say happened because a rapidly spreading coronavirus started to affect demand for raw materials. Margin calls may also have had an impact on futures traders with exposure to other assets.
The stock markets, which have generally ignored the U.S.-China trade war, news of the global downturn, weak economic data, the weak currency in recent years and have continued their uninterrupted bull run can now be seen. some suffocation in anticipation of a slower economic recovery.
Most markets have fallen by more than 5% so far in 2020. Therefore, to protect their wallets, people have started to park their money in gold. While rising prices have affected physical demand, investment demand remains on the higher side.
The World Gold Council said that in January 2020, global ETFs on gold and similar products added 61.7 tonnes to their portfolio, which is now reaching a record level of 2,947 tonnes. Open market interest began to rise, from $ 68.7 billion in December 2018 to $ 141.8 billion in February 2020, the highest since January 2013.
Market players are currently wondering how this situation will recur as the virus spreads to other countries and the number of deaths increases. China seems to have successfully mastered the situation. If contained, we could see a sudden surge in trading activity, which will stimulate the financial markets and the gold rally could take a break. If the viral crisis continues, gold could reach new heights on the Indian market when buying investment and touch $ 1,750 on the comex. On the Indian market, the yellow metal is most likely to touch the level of Rs 44,600 in the short term.
So don’t take the gold out of your wallet, fall in love with it. It will reimburse you in times of crisis and take care of the wealth of your portfolio.
President and MD, SMC Investments and Advisors
