Strong gold demand may continue until global economy is back on solid track

Gold may remain vulnerable to further losses in the short term, as markets are being impacted by movements in the US dollar, mainly due to the COVID-19 crisis continue to deteriorate in the West and emerging markets.

New Delhi : A strong demand for gold as a safe-haven asset is likely to continue at least until the global economy is back on a solid recovery path, according to markets data provider Refinitiv. “Central banks around the globe have come out with unprecedented stimulus to counter the economic slowdown caused by the COVID-19 pandemic. Interest rates have been kept either at historical low levels or in negative territory to create demand in the financial system and to stimulate growth,” Refinitiv Senior Metals Analyst Debajit Saha said on Tuesday.

He added that a strong demand for gold as a safe-haven asset is expected to continue at least until we see that the global economy is back on a solid recovery path.

During a webinar, Refinitiv Head (Precious Metals Research) Cameron Alexander said the past few months have been quite extraordinary and many markets continue to be profoundly impacted by COVID-19.

“Looking to the forecast for the year, a rise in scrap supply will help boost total supply by 3 per cent, offsetting a slight contraction in mine supply,” he added.

Alexander also said that while the impact of COVID-19 on the physical demand is expected to dissipate over the course of the year, the economic impact is likely to weigh heavily on the annual demand numbers and be a drag for some time.

Jewellery demand in particular will be hard hit, forecast to slump well over 40 per cent this year, while retail investment jumps 15 per cent as investors look to gold for its safe-haven appeal, he said.

“After the recent easing, ETF (exchange-traded fund) demand is again expected to rise towards the year-end, with well over 1,000 tonnes of fresh inflows forecast for 2020,” he added.

Gold may remain vulnerable to further losses in the short term, as markets are being impacted by movements in the US dollar, mainly due to the COVID-19 crisis continue to deteriorate in the West and emerging markets.

“Such a correction would lead to yet another bout of liquidation across all asset classes, including gold,” he said.

He added that with heightened uncertainty and expectations of the global economic recession, gold is expected to rebound to even higher levels. Unprecedented levels of stimulus from central banks around the world and interest rates remaining at historically low levels and in negative territories will also lead the gold prices to go up, Alexander said.

While the first quarter of 2020 remained extremely volatile for precious metals, the second quarter remained relatively stable. Both gold and silver maintained their upward journey as investors reallocated funds into both of these metals to safeguard their portfolios amid the economic uncertainty caused by the COVID-19 global pandemic, Saha said.

“In the current quarter, volatility has emerged again. Gold first hit USD 2,072 and silver USD 29.83 in the first week of August, and then we have seen a sharp correction.

“The price recovered, but this time failed to scale the same heights that it touched in August, and now, there is a sharp sell-off again. More than gold, silver has suffered and now it has created serious suspicion among retail investors,” he said.

Courtesy: Economic Times