Gold Outshines Equities, Safe-Haven Assets In H1CY2020

In an environment when uncertainty has become the norm, what gains favour as an asset class is gold and this has been very much evident with the rise in penchant for investing in Gold ETFs in the country. So far, in the first half on a yield to date basis, gold has managed to yield double digit returns.

In comparison rate on other better conservative and safe-havens is only trending lower after RBI's off-cycle rate cut decisions as also due to no liquidity crunch with these banks. A 1-year FD with SBI now fetches 5.1% per annum. Furthermore, in comparison to equities i.e. after a massive rout in March global sell-off, Indian equities have recovered but are still down for the year.

As per a report, as of May 29, 2020, the S&P GSCI Gold was up 13.94 percent YTD.

What has been pushing gold prices?

1. Economic uncertainty due to coronavirus crisis

2. Because of the sovereign debt soaring across economies, there is a threat to currency devaluation which pushes safe haven appeal of gold.

3. Further as has been evident, though equities and gold perform inversely, there is less of relationship that gold shares with other asset classes.

4. Rupee depreciation which last closed at 71.19 per US dollar.

On June 19, 2019, gold made a high of Rs. 47980 on the MCX. While price of 22K gold in Mumbai stood at Rs. 650 plus 3 percent GST and 24-carat 10 gram was Rs 47,653 plus GST.

Outlook for gold

In a report by Goldman, there has been made an upward price revision made for gold. But bouts of volatility shall still be seen which were witnessed earlier in late March when investors to push their liquidity levels amid market sell-off sold off their gold holdings to only later again take long positions and pushing gold again higher.

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