Gold will benefit in the long run

Last year was very challenging for gold. At the same time it was a great platform for the yellow metal to once again prove its safe haven appeal. Investors jumped in to the market, shifted funds from other assets class to gold. There was significant portfolio diversification that was witnessed. While other assets were struggling to sustain, gold and other precious metals were taking complete advantage of the pandemic. 

Almost a year down the line and gold has a completely different story to tell. Gold seems to be losing its shine as it declines. While gold has reached its life time high of $2000 in August 2020, today it lies at $1850. 

Top gold dealers in India and across the globe are of the opinion that the massive stimulus packages and renewed animal spirits have seen its price fall. Some believe that this downfall will continue at least for the next 6 months owing to the following reasons-

US Dollar- dollar and gold are always inversely proportional. A strong dollar is bad for gold, since it makes the metal more expensive for those buying in other currencies. Better GDP growth and high US treasury yields will result in a strong dollar and a weakening gold. 

Risk Taking- there are many factors that will compel investors to increase their exposure to riskier assets at the expense of gold.

• Fiscal stimulus
• Monetary support
• Vaccination
• Positive growth and revenue

These all will lead to a shift in focus from gold to other assets.

Even though the above mentioned factors compel us to believe that gold will gradually lose its lustre, but we can’t forget the much known fact that gold has always remained consistent since ages. Precious yet durable, finite yet accessible enough to be traded, bullion of gold is worth roughly the same now as it has always been. It has time and again proven itself able to withstand volatility while other assets rise and fall.

Many investors and RSBL analysts still have faith in the yellow metal and believe that this downfall is just a bubble and gold will soon recover and cross new highs. Gold has been facing challenges but the larger picture seems to be different

Equities- Even if equities can continue their forward momentum, a rise in inflation looks increasingly likely. Inflation would be bad news for traditional asset classes (bonds in particular), but good for gold, which would see its value rise at the expense of the dollar’s. It would also be unaffected by any change in interest rates while shares could suffer.

Crypto currency- The value of crypto currencies is almost entirely speculative. That is to say, whereas an asset like gold finds value in its commercial and industrial uses, Bit coin’s lies solely in what people are willing to pay for it.

Risk taking- gold has always been used as a hedge tool against volatility. The basic appeal of being a safe haven asset has always been alive in gold. This means that even when risk appetites are highest, there is always a good case for holding at least part of a balanced portfolio in gold.

All in all, the noise in the market says that gold is here to stay and whatever be the global situations it will benefit gold in all forms. 

Gold Manages to recover

 Last year we saw gold being one of the best performing assets amidst the crisis mainly due to the following reasons-

• high risk 
• low interest rates 
• Positive price momentum – especially during late spring and summer.

While on one side it reached life time highs, on the other side it also had one of the lowest declines during the year, and thus helping investors limit losses and manage volatility risk in their portfolios.

We have seen repeatedly, that gold always performs well during equity market pull backs and inflation. Whenever inflation has crossed 3%, gold prices have increased 15% on an average. 

Further, gold has been more effective in keeping up with global money supply over the past decade than US T-bills, thus better helping investors preserve capital.

Gold prices plunged to a six-week low of US$ 1,805 before bouncing back quickly on Monday. The rising US Dollar and uncertainties surrounding US President-elect Biden’s 1.9 trillion stimulus plans appear to be the primary weighing factors. Market sentiment is tilted towards the cautious side after US equities pulled back from their recent highs despite robust corporate earnings. As US markets are closed for a public holiday, thinner liquidity conditions could exacerbate price volatility.

The $1.9 trillion new relief package by Biden is going to help U.S economy sustain its falling growth. However, the bond yields cracked since then and another worry remains on 20th Jan. Over Biden’s Presidential ceremony as 50 U.S states are under alert for any kind of riots. Gold needs recover some lost ground of Thursday and Friday, since U.S Bond yields dumped. Over all the activities, now investors will keep a watch on the USD index. 

This week opened on a positive note for gold. We saw gold prices rising on Monday after hitting a 1-1/2-month low earlier in the session, as prospects of a massive U.S. coronavirus relief aid outweighed a stronger dollar and lifted bullion's appeal as an inflation hedge.

However, trades remained low profile as US observed holiday on Martin Luther King Day

The gold market remains relatively supported at these levels, as the current run of the U.S. dollar has more to do with safe haven, rather than a discernible pivot to a stronger dollar.

U.S. President-elect Joe Biden last week unveiled a $1.9 trillion stimulus package proposal to jump-start the economy and said he wants 100 million COVID-19 vaccine shots during his first 100 days in office. Is considered a hedge against inflation and currency debasement, likely from large stimulus

The U.S. dollar .DXY hit a four-week peak against rival currencies, making gold expensive for holders of other currencies.

RiddiSiddhi Bullions Limited, one of the top gold dealers in India remarks that the market view remains bullish for the long term as the U.S. dollar is expected to remain structurally weak in the long term.

Many investors are now concerned about the inflationary pressures owing to-

Low interest rate environment

Growing money supply

There are a few key drivers that will significantly influence gold prices and also affect various sectors of demand and supply-

• Economic growth
• Risk and insecurity
• Opportunity cost
• Momentum

In this context, we expect that the need for effectual cautiousness and the low-rate environment will keep investment demand well supported, but it may be heavily influenced by the perceptions of risk linked to the growth and development of the economy.

A big hardship for gold bulls

Gold extended the bounce from six-week lows on Tuesday, finishing Wednesday,  with moderate gains well above the $1850 level. On Wednesday, the yellow metal gathered pace to test the $1872 hurdle ahead of US CPI reports.

Gold prices fell back again in London trade Tuesday, retreating $20 from a rally to $1863 per ounce before steadying as Western stock markets fell once more against a backdrop of worsening Covid infection and death rates, supply-chain issues with mass vaccinations, but also a rise in longer-term interest rates in the bond market ahead of the "trillions" in new borrowing due from incoming US President Joe Biden's spending plans.

Following last Wednesday's violent attack on the US Congress by a mob backing Donald Trump, a 'source' at the FBI warned of further protests and terrorism by pro-Trump supporters at next week's inauguration of Biden as President.

Trump is being pressured to resign and yet there is no response from him. However as mentioned, Biden has reassured that there would be additional stimulus coming in. A Fed Government stated good US growth prospect and bond purchase program. 

A much larger financial package of $2 trillion is possible as per the early reports suggest by Biden on taking full charge. On the other hand, US 50 states under server alert during Biden’s oath ceremony on 20th January, as President Trump is defiant and put up only a small remark for his supporters. 

Gold drifted higher in quiet mid-week trading, with the $1850 looking like the support level – at least for now. It was up $3 at $1860 during Thursday’s trading session. Generally speaking, the markets are in the quiet mode this morning, with nothing standing out save the latest chapter in the unfolding saga in Washington.

Gold came into a difficult phase as it comes to $1830-$1835 final support. Since bond yields are staying positive and USD again attempting 90.4, it’s a big hardship for gold bulls. This sentiment was echoed by many top gold dealers in India. 

For traders it’s imperative to hold $1822.9. A final stop and support bands of $1830-$1836, once it’s done, gold will fast move to $1855-1865.

Right now, gold has a strong support at $1,820 and that is because the expected stimulus package will increase the inflation rate which is significantly important for gold prices.

2021 starts with a choppy ride

2021 began with a choppy ride for the US and EU markets. The Dow and S&P opened with a new life high and later cracked by 2.5-3% from the highs. But later reduced their losses to half.

Gold after hitting a precise $1962.5 targets, crashed for $1902 to fill the gap. The USD index stayed lower at around 89.4 but the bonds yield made massive 10-15% gains on Wednesday. Gold after gaining $50 on Monday and losing $50 on Wednesday, showed significant volatility. These fluctuations are expected to continue as there would be a line up of significant global news from vaccine to new mutations, from stimulus to geopolitical worries.

Currently, there are two worries that would be vexing investors in the precious metals sector in recent weeks believes the RSBL analysts.

One is that gold and silver won’t rise much because big banks like JP Morgan will cap it by dumping onto the paper market. The key point to keep in mind is that gold is “real money” and this being so,  the idea that a currency like the dollar can collapse towards zero and gold won’t go up because the banks will be selling it on the paper market is both absurd and ridiculous – what would happen is that an untenable massive gap would develop between the price on the paper market and the price on the physical market, and the paper market would become rapidly irrelevant and obsolete, so we don’t have to worry about that. In fact, to the extent that they are actually suppressing the gold price, all they are doing is creating a “pressure cooker” effect that will lead to a massive upside explosion, but you certainly don’t want to wait for that to happen before you take positions across the sector.

 The other is that Cryptos are stealing “gold’s thunder” and siphoning off funs that would otherwise go into the precious metals. One reason that Cryptos are going ballistic now is that the NWO (New World Order) plan to use Cryptos as the vehicle to pay the Universal General Allowance (UGI) to the dispossessed serfs who are permitted to live in their new system. In order to qualify for this they will have to be fully compliant with all the dictates of their Masters which will of course include being vaccinated.

There is also a misplaced belief that you are “outside the system” when you buy Cryptos, but you won’t be outside the system if they decide to “pull the plug” on the internet, a possibility raised in this dystopian short film Dark Winter, which they may do because the internet is the only way to find out the truth about what is going on. The NWO are believed to be developing and perfecting their own Cryptos, and when it suits them they will simply outlaw or block all of the others, or make ownership of them punishable by a jail sentence – don’t forget they are above the law and can do anything they like, like the current lockdowns which are illegal. At least with the Precious Metals you can physically own them and they will not disappear if banks close their doors or the internet is taken down believes the top gold dealer in India RiddiSiddhi Bullions Limited.

Gold has already punched through its 2011 highs last year, but has since reacted back below them which are thought to be a normal reaction prior to renewed advance. A big concern with a pattern like this is that it could stall out for a long time marking out a Handle to complement the Cup before continuing higher, but this doesn’t look likely on this occasion because the dollar looks like it is on the verge of collapse with the Fed set to continue attacking it relentlessly.

We now have a very rare setup for gold which is in position to “go ballistic” as the dollar collapses. The dollar is being intentionally destroyed by the Fed which is creating dollars in vast unprecedented quantities in order to buy up distressed assets on the cheap and in order to pave way for the new “digital dollar”. We are in the last stages of the fiat endgame where money creation goes vertical, quickly leading to becoming worthless, as happened in Venezuela and Zimbabwe.

Its Wrap Up Time

 In the year 2020 the new positive was the word negative. Well for gold, it was all positive only. The yellow metal rose more than 22% since the start of the year, with the highest peak reached in August when it hit a new record high of $2,075 an ounce. Since then, gold has been consolidating below the $1,900 an ounce level.

In 2020, the economic and social uncertainties triggered by the coronavirus pandemic turned the spotlight on gold as a safe haven.

RSBL analysts argued that it was a sharp turn in global monetary policies that led to a low interest rate scenario and unprecedented liquidity, which began in mid-2019, gave a boost to gold price in all major currencies, making the yellow metal attractive for investors.

There were restrictions, lockdowns, weakening economies, declining dollar and overall a poor global growth which pushed investors towards gold. Though vaccination campaign did try to shake gold, but it couldn’t break it. Gold managed to recover the drops it faced as the vaccine ride began.

In the domestic market too, gold opened this year at Rs.39, 199 and steadily rose to Rs.56, 191. The price of the yellow metal reached an all-time high of Rs 56,191 per 10 grams at MCX and USD 2,075 an ounce in the international market in August.

RSBL Gold prices in India got an additional support from rupee depreciation against the dollar during the year as spot rupee was down by around three per cent year-to-date.

Further, the sharp decline in US equity indices in the first half of the year and the fall in real yields drove investors out of dollars which boosted buying in gold.

As we approach 2021, gold will remain in focus for investors. The main drivers cited include

Inflation-let’s assume that many people do get vaccinated and the vaccine is effective, then the economy should take off in a serious way in the second half of next year. The inflationary scenario would then become a real possibility, which would be positive for metals

Inflation will be a big concern to watch next year, which will encourage a flight to gold's safety trade.

Weaker U.S. dollar- The dollar could weaken on the back of more stimuli and that could help gold prices rise once again. Also, inflationary expectations due to the massive stimulus can be seen as a positive factor that could attract investment buying once again in 2021.

Economic concerns- With all this money printing we've gone through in 2020, next year will be the year we are all illusioned of the notion that we can print money without consequences. Gold can go through $2,100, and we could possibly challenge $3,000.  Rising debt-to-GDP ratio, quantitative easing, and the narrative in Modern Monetary Theory (MMT) as the reasons behind gold's move to new record highs next year.

Currency debasement fears- For gold, this means new all-time highs with more investors choosing to diversify into the precious metal in order to protect themselves from rising prices and currency debasement.

Debt- Vaccine is not going to cure the amount of global debt. Central Bank policies would continue to remain accommodative in spite of a successful vaccine.

Central Banks low interest rates and easy liquidity -_Next year will see central banks holding their foot down on the stimulus pedal with no chance of rates going higher which keep the bullish sentiments alive for the yellow metal.

Stimulus package. - Fed has been consistent, and we will see more fiscal support next year. This is the main reason why gold will make a strong run-up towards $2,300. Central banks across the globe, have pledged to keep rates low and easy liquidity to aid growth. Further, a stimulus package from the US government will add to the existing dollar liquidity in the system and may end up weakening the greenback and strengthening gold

Equities Another key trigger that will boost gold towards $2,100 next year will be stock market volatility. The U.S. share market is trading at historical extremes because investors are optimistic about the vaccine curing it all. In 2021, we are likely going to have equity market volatility throughout the year, and that should be supportive of precious metals prices.

Senate Runoff elections- the key driver that precious metals traders are eyeing is the Jan5 Senate runoff elections in Georgia. If Democrats win both the seats that are up for grabs, it would give them control of the Senate agenda and the fiscal policy is likely to stay loose which would heavily weigh on the green back and be bullish for the precious metals.

Overall, it is going to be a very strong year for gold. You are going to see unprecedented fiscal and monetary stimulus continue in the first half of the year confirmed the top gold dealer in India, RiddiSiddhi Bullions Limited.

These were the key drivers that will play a key role in influencing gold prices towards the higher end. 

Not to forget the very important Vaccines- A successful vaccine drive is still far from the near reality. We don’t know how many people it will reach out, how effective will it be, will it be able to combat the new mutation etc.  If the vaccine is not as effective or less than 50% of the population takes the vaccine, then the economy is going to struggle, and both the government and the Fed is not going to have any option but to increase stimulus which will further be constructive for gold.

So over all, the Bull Run continues for gold in 2021. Even if the vaccine works, there are concerns that will suppress the vaccine sentiments and will continue to push gold higher maybe to new life time highs.