TAKE THE BULLYON RIDE

Gold may become a tool for revival of household fortunes and small enterprises

- Yagnesh Kansara

IN the Hindu calendar, Akshay Tritiya is considered an auspicious day for people to buy gold. But this year the COVID-19 lockdown has dampened the demand for the precious metal. But given its resilience as a safe-haven asset, experts are forecasting that prices may cross Rs 5,000 a gram by the end of 2020.

Like crude oil, in case of gold too, India is a net importer and the currency movement plays a significant role in the determination of local prices. As most economic activities came to a halt due to the lockdown, the Indian rupee has depreciated a lot and is weaker than before vis-a-vis the US dollar. And it is expected to weaken further over the rest of the year as the effects of the pandemic unfold gradually. The weaker rupee is a key factor in gold prices moving up.

In 2019, around 33 to 35 tonnes of gold was sold on Akshaya Tritiya (May 7). In the past two months, import of gold to India has dipped more than 73 per cent on a year-on-year basis. This March, India imported just 25 tonnes against around 94 tonnes in March 2019. Last year’s Akshaya Tritiya saw gold being traded at Rs 31,500 per 10 gm and gave almost 47 per cent returns to gold investors. Now the price has gone up to Rs 45,790 (as on May 4). The gold trend is still positive on the back of uncertainty and lower global growth forecast. The physical demand this year is likely to be hit due to the lockdown as well as the higher prices.

There are several indications and reasons why gold prices are expected to rise in the immediate to medium term and this surge in prices is important as it gives an indication of how tough the economic situation will be during the period. Due to higher prices, the physical demand for gold has declined, but the investment demand for the yellow metal has risen due to rising institutional demand.