Gold price may rise to Rs 82,000 per 10 gram by end 2021. Here is why

Gold price may rise to Rs 82,000 per 10 gram by end 2021. Here is why

The stock market crashed when the lockdown was felt but the luster of gold continued to rise
Globally, declining interest rates have seen an increase in investment in gold


Gold which has already rallied 75% in the last one and a half year may jump another 76% in the next 18 months, say analysts. Bank of America Securities (BofA Sec) believes that gold prices in the international market may rise to $3000 per ounce (Oz) by end 2021. The brokerage upped its target price on gold from $2,000 to $3,000.

“As central banks and governments double their balance sheets and fiscal deficits respectively, we have also decided to up our 18-month gold target from $2,000 to $3,000,” BofA Sec mentioned in a note.

In rupee terms, $3,000 per ounce means Rs 82,000 per 10 grams, an upside potential of 76% in the next 18 months. On Thursday, gold futures for June on MCX closed at Rs 46,352/10gm. In the international market, gold is currently trading at about $1,750 level.

Analysts say as stocks and bonds do not show much optimism as an investment option in the current scenario, gold could be the asset to put your money in.

As risk assets like equity and debt are falling worldwide amid uncertainty over growth, investment demand for gold, which is considered as a safe-haven asset, has gone up substantially. Macroeconomic concerns due to Covid-19 outbreak have led to hoarding of gold, say analysts. Also, the rupee has corrected significantly against the US dollar in this year so far due to which the yellow metal has risen more in rupee terms.

According to a report in the World Gold Council, gold exchange traded funds (ETFs) globally have added 298 tonnes of gold, valued nearly $23 billion, into their portfolio in the first quarter of 2020, the highest quarterly inflow in absolute terms since 2016.

In the first fifteen days of April, gold prices have rallied over 7% (from Rs 43,725 per 10 gram of 24K purity on March 31 to Rs 46,476 on April 15) as per data available with Indian Bullion and Jewellers Association Ltd. On April 16, gold futures traded on MCX expiring in June crossed Rs 47,000 the first time during intraday trade.
Indian stock markets crashed when the Corona virus caused a lockdown, but the luster of gold continued to rise. There are currently reports that the economic downturn caused by Corona will take time to recover. This suggests that gold prices will continue to rise in the future.

Why are gold prices rising?
According to Indian philosophy, gold does not make money but it helps in times of trouble. The whole world considers gold a good tool for safe investing.

Markets are going through uncertainty. Given Corona's growing case, no one can say when the economic recovery will take place. The Global Financial Institute and consulting firm are predicting a decline in the equity market.

When all the investment tools like stock market, bank FD, bonds show negative growth, experts advise investing in gold or gold bonds for safe investment.

Why did the price of gold go up?
Corona has caused a downturn in stock markets around the world. Against this, the international market has seen an increase in gold prices since May 2019. It has returned more than 44% in one year.

In the international market, gold has risen from 12 1250 an ounce to 18 1800 in one year. In India, gold has given a return of about 50% in a year. Gold in May 2019 to Rs. 32,000 per 10 grams which is now Rs. 49,000 has happened.
Which of the following is a good investment tool from the stock market and gold?The Sensex (BSE-30) and BSE-500 have given annual returns of 9.05% and 8.5% respectively over the last 10 years. By December 2019, the Sensex had reached 40,000.

Stock markets around the world collapsed after the Kovid-19 spread. Indian markets also fell 40% to 27,400 points by April 2020.

Stock markets around the world, including India, have been improving since April. In emerging markets, investors are seeing a positive outlook on new trends.

On the other hand, in 2008 gold was worth Rs. 8000 to Rs. 25,000 was done. By 2019, the price of gold had reached Rs 35,000 per ten grams, which is now close to Rs 50,000.
Is there a direct relationship between gold and interest rates?
There is a negative relationship between interest rates and gold prices. That is, if the interest rate goes up, the price of gold goes down and if the interest rate goes down, the price of gold goes up.

Central banks around the world have cut interest rates to combat the recession. Have announced a large economic package. The effect was that investors turned away from the banks. This was also the case during the 2008 recession.

According to consulting firm Deloitte Outlook, bond yields, crude rates and interest rates could fall further. It will have a serious impact on markets and banks and may lead to a rise in gold prices.

The Government of India has announced an incentive package of Rs 20 lakh crore for recovery in the economy. This will hurt the financial market and asset class bonds in the long run and it will boost gold.
Is gold worth Rs. 80 thousand can happen?

"Gold prices will fall as the stock market rebounds," the Reserve Bank of India said in a monetary policy report. But amid the uncertainty of economic policy, gold prices will continue to rise.
If you look at history, when risk assets like equity and real estate and bonds rise, gold prices are lower. This has been seen between 2011 and 2015 after the 2008 recession.

Analysts say that in the second half of 2021, investors will start investing in stocks, real estate and other risk assets. Somewhere after that, the economic recovery will pick up speed and gold prices will stabilize.

It is expected that by 2021, everyone will start getting the corona virus vaccine. Until then, economic uncertainty will continue. That means fast-moving gold could go up to Rs 80,000 next year.

Is it safe to invest in gold at current prices?

Interest rates in India have fallen sharply in the last one year. The downturn in the equity market has turned investors' attention to gold.

In such a scenario, the possibility of further reduction in small savings and term deposit rates cannot be ruled out if the RBI cuts interest rates further.
SBI currently offers 2.7% interest rate on savings bank deposits and 5.4% on 5-10 year term deposits.

In such circumstances, investing in sovereign gold bonds is the best option. It will also have the benefit of 2.5% interest and capital gain. This will protect investors from any depreciation of the rupee.

Is gold likely to break even?

This suspicion cannot be denied right now. Researchers and analysts say a fall in gold prices is possible. But that doesn't seem to be the case at the moment.

If central banks sell gold to meet the economic crisis or if investors sell ETFs in case of losses in risky assets, gold could come under pressure and prices could fall.


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