Gold shines brighter on global economic growth, rapidly expanding money supply

Purchasing a gold coin or jewellery on the occasion of Diwali or Dussehra is considered a wise decision not only for its monetary value, but also for its social value. In India, gold has traditionally been regarded as the safest form of investment. It is associated with auspicious occasions such as Diwali, Dussehra, and Akshaya Tritiya in our country. As the holiday season approaches, gold demand rises.

This year, jewellers anticipated a significant increase in sales because the price of gold has not increased significantly throughout the year, despite the fact that other asset classes such as the global equity market and the metal market are at all-time highs, but gold is down around 15 percent, or Rs 8,751, from its record high of Rs 56,191 per 10 grams on the MCX. Due to massive stimulus in the global market and near-zero interest rates in the US, the dollar is weakening against the most world currencies, which is supportive of gold prices. The only concern is that if the US bond yields continue to rise, gold prices may be capped on the upside.

Every year, India, the world’s largest gold importer, brings home 800-900 tonnes of gold. The primary reason for gold import is to meet the demand of the jewellery industry. The demand has shot up this year on the back of attractive prices. According to the Department for Promotion of Industry and Internal Trade, between April 2000 and March 2021, the cumulative FDI inflows into diamond and gold ornaments in India totalled $1,190.83 million.

The Department for Promotion of Industry and Internal Trade (DPIIT) indicates that the outlook for gold remains bullish in the country.

Besides purchasing physical gold, one may consider instruments such as Gold ETFs and Sovereign Gold Bonds. Both have advantages such as higher yields than physical gold, tax advantages, guaranteed purity, and so on. A Gold ETF is an opportunity to gain exposure to precious metals, particularly gold. It invests in 99.5 percent pure gold.

Digital gold is now a way to invest in and buy the metal without having to physically hold it. Buyers can easily acquire gold in the quantities required and increase their holdings without having to visit a store. The gold will be stored in a vault where you will be able to sell it or convert it into actual gold whenever you want. People are interested in investing in gold, but their main concern is the purity of the metal. On the other hand, gold can be purchased digitally in e-wallets, in the form of bonds, or through brokers who offer to buy digital gold.

The outlook for the gold market fundamental analysis remains positive, supported by a growing global economy and a rapidly expanding global money supply. We can expect all-time global gold by December 2021.

Courtesy: Kshitij Purohit/Money Control