Outlook Money|July 2020
Gold is a symbol of wealth and holds a deep emotional connect with India’s culture, and has served as a financial support through the years. But as the modern investment instruments become more visible and easily accessible, and high-end consumer goods become more lucrative, the young Indian population is reportedly becoming less prudent to invest in the golden metal. Further, the market facing global economic recession induced by the novel Coronavirus pandemic is unlikely to attract more young consumers at the time when the price of the golden metal is skyrocketing.
If history is a guide, gold has provided positive returns during periods of economic shocks, falling equity markets, high inflation, falling currency rates, and geopolitical uncertainties; however, entry at this point for an individual consumer will be at a higher price point. Gold prices in India rose to ₹48,420 per 10 grams on June 24, this year.
The Reserve Bank of India estimates the GDP growth of the country is likely to remain in the negative territory in 2021, and much will depend on how the curve begins to flatten and moderate. But why is gold performing at an all-time best during this uncertain period, and what does it mean for the investors in gold?
“Given the background of the global economy, gold as an asset class is going to remain very much in the reckoning. There is no visibility in terms of economic return, and there is no rebound of economic activity – or, you see a very U-shaped or L-shaped recovery, which will take time. I think this could go to support gold,” Hitesh Jain, Lead Analyst, Institutional Equities, YES Securities, says. “The other things which also remain supportive for gold are expansionary monetary policy and fiscal policy, because when the central banks across the globe go on an expansionary mode to finance deficit with economic growth remaining low, eventually they have to print money, which again leads to monetary debasement – and gold as an alternative currency always comes back in the reckoning,” he adds.
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