Majority of the commodities particularly crude oil has been the worst place to park your cash within the extremely prevailing international lockdown to battle COVID 19. However gold has been an exception because of the risk-off state of affairs. Gold usually tends to behave as a secure haven asset in instances of world worries. Spot Gold denominated in US greenback has registered a achieve of greater than 12% and MCX Gold has gained by greater than 18% since December 2019 until date. The distinction of just about 6% between Gold denominated in greenback and MCX gold is principally as a consequence of Rupee’s depreciation towards the US greenback. In the identical interval, Rupee depreciated nearly 7% towards the US Dollar.
Other than gold, all different commodities have seen a fall with Brent crude registering an enormous 68% dip since December 2019 whereas LME copper fell by approx. 17%. Even Silver that has 60% of business properties witnessed a dip of just about 10% in home markets. Benchmark fairness index the Dow Jones industrial common fell by practically 18% whereas the Nifty 50 Index misplaced greater than 24%. Looking on the latest efficiency it has certainly turn into essential to think about gold in a single’s portfolio so as to stability the risk-adjusted return.
Now what lies forward must assess so as to make an knowledgeable choice. Gold anticipated to carry out as the present unsure state of affairs coupled with geopolitical pressure within the background may lend the required assist. Sharp inflows within the international gold ETF’s point out that traders are apprehensive concerning the riskier property and are transferring extra in direction of the secure havens. As per Bloomberg, the world has pledged greater than $eight trillion to battle COVID19. Experts imagine $eight trillion isn’t going to be sufficient and extra stimulus measures by the worldwide central bankers is perhaps required. This will create inflationary stress going forward which once more is supportive for gold because the yellow steel is historically an excellent hedge towards inflation. However, one ought to be cautious as one of many hurdles in gold’s rally is perhaps the interval when the virus will get contained and which may see some offloading of gold lengthy positions.
Economically delicate commodities like power and industrial metals may commerce with a downward bias till the virus state of affairs is contained. Once the virus state of affairs is contained and the lockdown restriction lifted, we must assess the state of affairs as it would take loads of time to get the demand and provide on stability.
To conclude international uncertainty and risk-off state of affairs is good for gold’s bull rally. However, we can’t rule out some velocity bumps in gold’s rally.
(Ravindra Rao is VP- Head Commodity Research at Kotak Securities. The views expressed are the creator’s personal)