As uncertainties in geo-politics, on economic front and with inflation looming large, gold could turn out to be a saviour for investors; it has outperformed most other asset classes in FY23 and there is no reason why it is going to relent, this year as well
Investors who relied on Gold over the past one year are laughing all the way to bank. It has been the best performing asset class in the financial year ending March 2023, giving over 15 per cent returns on investment in a 1-year period, in India. As fear of economic slowdown in most major economies looms, there is a strong chance that the yellow metal will see a further upside and could end up being the numero-uno this year too.
Gold is considered as a safe haven for investors at times of uncertainties. The last three years have been marred by health, economic and geo-political upheavals and that has helped the cause of the bullion (gold and silver).
The appeal for gold has seen a year-on-year rise since the onslaught of the Coronavirus pandemic in 2020, which forced global lockdowns bringing economies to a standstill. Even as the world was coming to terms with the pandemic, the Russia-Ukraine conflict started taking the world into a tailspin. The food and energy crises went up exponentially and started taking inflation to unprecedented levels. The world is still fighting to tame it. The latest was the banking crisis in the US which has now raised concerns of a more expeditious slowdown in the world’s largest economy.
Meanwhile, China, which is the world’s largest consumer of any commodity has been shut on worries of growing Coronavirus pandemic at a time when other countries are much better-off. The Xi Jinping government enforced a lockdown of a scale which only a country like China could forcibly do. Although this led to a crash in commodity prices, the fears of slowdown hit the roof.
All this has helped gold which has grown from strength to strength in the last three years.
Bullion’s Report Card
The international price of the yellow metal recently hit levels of USD 2070 per troy ounce and is inching towards an all-time high of USD 2075. Given the current momentum we are likely to see it do that in a couple of months from now.
In India, the gains have been even better. Gold has gained nearly 15 per cent on the MCX exchange. The first three months have been exceptionally rewarding as it has appreciated by nearly 11 per cent. If we compare it to the equity markets which is ideally supposed to be most rewarding investment avenue among all the asset classes, the latter has not even been a shade of gold over the last 12 months. At the end of FY23 (1 April 2022-31 March 2023), the bench mark index Nifty50 is almost at the same level at which it was at the end of FY22.
The valuations in the Indian market have corrected significantly from being overpriced to now at levels which are closer to the fair value. Yet, some more correction in prices cannot be ruled out. Given the uncertainties in the global economy, it is still not known if they will find traction among the buyers.
But, this uncertainty is definitely helpful to gold. Many experts in the know are already predicting gold to reach levels between Rs 68,000 – Rs 70,000 per 10 grams by the end of this year. In percentage terms, this is a staggering 17 per cent.
At present, the price of gold in India is around Rs 60,000 per 10 grams.
Meanwhile, another bullion metal, silver has also moved in tandem with the gold price movement. The price of silver futures on the MCX have scaled Rs 75,000 mark and it is steadily moving towards its lifetime high of Rs 77,500, which was hit in August 2020 (at the peak of Covid).
Gold and silver have a strong outlook and will likely gain significantly during this year as well. Investors appear worried about the prospects of other investment avenues as economies, worldwide slow.
If the US Federal Reserve continues to increase interest rates, we could see more foreign money leaving Indian shores for greener pastures back home. A weaker equity markets will augur well for the cause of bullion as people will be inclined not just to protect their capital but also make gains on it.
Dollar Index (DXY) which measures the strength of US Dollar against a basket of six major currencies, is down from the highs of 115 to below 102. Gold and USD are inversely related which means that if DXY is gaining, gold will come down and vice versa. The dollar is hovering at its two-month lows amid the banking crisis which has made the green weaker.
The outlook for DXY is weak and a further slip will provide a thrust to the prospects of bullion.
The advent of cryptocurrency shifted a large part of investor preference towards it. It seems to be coming back in favour of gold with the collapse of cryptocurrency exchange FTX. Many people have burnt their fingers and are now relying on tried and tested avenues for investments.
Covid cases are on an upswing in India again. While we have smartly dealt with it till now, it might be a cause of worry for in the near term. Investors should expect a fresh bout of rally in this precious metal. Investors could look to enjoy this joyride as gold is not going anywhere, at least this year.
Gold will glitter and outperform most of its other peers and we could see investors making a beeline to get it. The demand will only strengthen its prospects.
The traction towards it could be gauged by the trends seen as most central banks are building up on their gold reserves to ride preempting difficult times ahead.