Safe bet: Five reasons that will lead gold to all-time high price

Indian households supposedly hold 25,000 tonnes of gold valued at Rs.121.5 trillion, or almost 60 per cent of India's GDP.

Gold price hit $1800 in New York's Comex Futures and appear headed for an all-time high level of $1900 in the international market, lifted by investors seeking a safe bet as the world battles coronavirus pandemic .

In India, prices calculated with 3 per cent Goods and Service Tax (GST) crossed Rs. 50,000 per 10-gram mark. Silver in Futures on MCX is trading at Rs 50,300 (without GST). In 2011, gold reached above $1900 and then fell sharply to consolidate at lower levels for years after falling to near $1,000. Gold usually has a price cycle of 8-10 years and after consolidating for years it has entered a bull cycle.

“Gold continues to have plenty of upside from current levels. We expect prices to come close to the 2011 peak of $1,921, although that level may not be breached this year," said Metal Focus, a London-based bullion and metal research firm.

"This may not to be a straight line rally and there will be periods of liquidations which will potentially take it to levels as low as $1,600. Investors should buy at such. That will make such dips short lived. Overall, we forecast the gold price will average $1,700 in 2020, up 22% year-on-year,” said Metal Focus.

Gold averaged $1,647 per ounce in 2020. The price rally this year has made Indian investors holding gold for the last 12 months richer by Rs 36.5 trillion. In the last 12 months, gold price in India has increased by 43 per cent to trade in the physical market at around Rs 48,600 per 10 gram. Indian households supposedly hold 25,000 tonnes of gold valued at Rs.121.5 trillion, or almost 60 per cent of India’s GDP.

Investors are spending fresh billions hedging market mania: Experts

Gold and longer-maturity bonds are getting outsized inflows. Protective equity options are outdrawing speculative contracts, while volatility markets are positioning for fresh disruptions.

Whether it’s a bearish portent of a sell-off to come or prudent hedging after a fierce stock rebound, traders are bolstering their defenses against an end to this vertiginous rally.

Gold and longer-maturity bonds are getting outsized inflows. Protective equity options are outdrawing speculative contracts, while volatility markets are positioning for fresh disruptions.

It comes as signs of froth are emerging. The S&P 500 Index is on the cusp of its best quarter in more than 80 years even as fears of a second coronavirus wave grow. Speculative mania reigns among retail investors, while the likes of JPMorgan Chase & Co. are turning bullish on U.S. stocks.

But for all the fears that Wall Street is running headlong into risk in one of the fastest rebounds ever, hedging demand shows the frenzy is being met with some vigilance.

Yellow Metal

Net bullish bets on gold in futures and options have risen for the first time in four weeks, recovering from a one-year low, Commodity Futures Trading Commission data showed on Friday. The SPDR Gold Shares, the world’s biggest exchange-traded fund holding bullion, took in the most in about a year at $1.3 billion on Friday. Overall, gold ETFs boosted their holdings by almost 30 tons, a sign of enduring faith in the defensive asset.

One reason: bulls keep finding their faith rewarded, with the price of bullion edging toward the highest since 2012.

Investors opting to sit back till things get clearer: Kenneth Andrade

The market sell-off has already captured a lot of bad news in the price. Businesses now trade at book value (BV) or significantly lower, which limits their downside.

Even though the markets have recovered from their recent lows in a hope that the worst may have already played out as regards coronavirus (Covid-19) pandemic, KENNETH ANDRADE, founder & chief investment officer (CIO) at Old Bridge Capital Management tells Puneet Wadhwa that investors need to push their investment horizon to 2022 and beyond to watch how corporates recover from the lockdown. Edited excerpts:

Do you see more pain for the markets over the next three – six months once the dent on corporate earnings and economy due to Covid-19 becomes clearer?

The market sell-off has already captured a lot of bad news in the price. Businesses now trade at book value (BV) or significantly lower, which limits their downside. The risk-reward ratio is very favorably balanced in favor of the former, time is the only element one cannot quantify. At this point there is little value at looking at the immediate future, as the first half of this year remains a washout. One needs to push the investment horizon to 2022 and beyond to watch how corporates recover from the lockdown.

How is the mood among your clients / investors as regards equities as an asset class?

There is, of course, a concern given the steep correction. Some of the smaller market indices have seen lows that have gone back to 2006. In this context, feedback from investors is fairly balanced. While there is a concern at one end, but they also understand that there is low valuation risk in the system. The preference right now for new money is to sit on the sidelines till things get a bit clearer.

What is the likely dent on the economy and the corporate earnings for financial year 2020-21 (FY21)?

The first quarter of the financial year (April – June period) accounts for 15 per cent – 20 per cent of corporate India’s turnover. If the problem does get resolved and the pandemic risks ease, it will give India corporates reasonable time to gear up for the second half of the year. Earnings will fall for sure, but there is little sense in trying to predict 2021.