Thu. Mar 28th, 2024
Gold

Unstable markets have pushed investors to look for assets that will be slightly influenced by geopolitical events. For many, this has meant rallying to gold, amid a pandemic and global economic plunge

gold-bull-market

In the future, investors and traders will regularly look to 2020 to understand just how different stocks, bonds, currencies, commodities and investment securities react in times of prolonged market volatility. What makes this year stand out from other volatile periods (the 2008 global recession immediately comes to mind) is twofold.

The first has to do with the  COVID-19 pandemic being a health crisis shrouded in uncertainty. We simply do not know when or how the virus will cease to dominate government agendas, business activities and consumer behaviors. As a result, traders and investors cannot predict with any certainty what the coming months, weeks, or even days will bring. This makes managing an investment portfolio particularly difficult, forcing investors to contend with something beyond their control.

The second has to do with the long-term implications of COVID-19 on the global economy. There are concerns that the coronavirus will trigger a reverse in globalization; for example, new popularity for protectionist policies to safeguard the future of national industries and a contraction in global supply chains. It is too early to tell whether this is likely to be the case, but either way, we must acknowledge the enduring influence COVID-19 will have on businesses, government and investor actions for many years to come.

Are investors making money with a collapse in physical gold demand amid pandemic?

investor gold rush in west offsets collapse of asian market

Demand for physical metal from traditional retail buyers in China and India are collapsing because western investors are piling into gold in the pandemic, helping push prices to an eight-year high. Inflows into exchange-traded funds this year –- mostly in North America and Europe –- are already inches away from the annual record set in 2009. Meanwhile, demand in China and India, the world’s two biggest buyers of gold bars, coins and jewelry, plunged after the coronavirus stalled imports and emptied malls. With rising prices deterring buyers, sales have been slow to return as

The change intensifies the global push-and-pull for gold between western investors peeking for a safe haven and traditional demand centers for physical gold in Asia. It also puts forward important questions for the market this year, as gold prices risk forfeiting support if ETF inflows slow down, or could gain even more momentum if Chinese and Indian demand bounces back.

“The U.S. and European investors are expected to remain interested in gold regardless of Asian demand. The price would have come up even further If the buying pattern were to go up as well for China and India at the same time as what you see in the ETF market.

Gold rush at Turkish bazaar a test of trust for lowly Libra

the Turkey gold rush

Hasan Ayhan followed his wife’s instructions last week and took their savings to buy gold at Istanbul’s Grand Bazaar as Turks scooped up bullion worth $7 billion in a just a fortnight.

With memories of a currency crisis which rocked Turkey’s economy only two years ago fresh in his mind, the retired police officer was among those playing it safe as he queued in the city’s sprawling market, where a screen showed the gold price rise by one Turkish lira ($0.1366) in just 10 minutes.

“I think it is the best investment right now so I converted my dollars to buy gold,” the 57-year-old said. “I might withdraw my lira and buy gold with it too, but I am scared to go to the bank right now because of coronavirus.”

The day after Ayhan bought his gold on Aug. 6, the lira hit a historic low and remains skittish, laying bare concerns that Turkey’s reserves have been badly depleted by market interventions, which are showing signs of fizzling out.

Turks traditionally use gold for savings and there may be 5,000 tons of it “under mattresses,” with more added after the recent buying spree, Mehmet Ali Yildirimturk, deputy head of an Istanbul gold shops association, said.

Gold import plunges 94% in the April-June quarter to $688 million, narrow India’s trade deficit

physical gold

Gold imports, which have a bearing on the current account deficit (CAD), plunged 94 percent to USD 688 million (about Rs 5,160 crore) during the first quarter of 2020-21 due to a significant fall in demand in the wake of the COVID-19 pandemic, according to data from the Commerce Ministry.

Silver imports during the quarter dipped 45 percent to USD 575 million (about Rs 4,300 crore).

Similarly, Imports of the yellow metal stood at USD 11.5 billion (about Rs 86,250 crore) in the corresponding period of 2019-20.

March, April, May and June’s fall was 62.6 percent, 99.93 percent, 98.4 percent and 77.5 percent. But the gold imports have been recording a negative growth since December last year.

The country imports 800-900 tonnes of gold annually, In volume terms. Gems and jewelry exports decreased by about 72 percent to USD 2.7 billion in April-June 2020.

Hike in price is affecting the buying behavior of a consumer in Asian markets

gold rally

Closing out the second quarter with the largest rally in more than four years, spot gold has risen 17% in 2020. On Tuesday, gold futures on the Comex topped $1,800 an ounce for the first time since 2011.

Even as economies reopen, Asian shoppers have had a chilling effect due to higher prices. Demand for jewelry in China and India tumbled as lockdowns, job losses and weak economic growth prevented optional spending.

Nidhi Saxena, 31, a software engineer at a technology firm based in Gurugram, India, was planning to buy gold bangles in March, but as gold prices soared and colleagues were laid off she changed her mind.

“I can’t even think of buying gold right now when I am not even sure if my job is safe,” she said.

Will this rally end up in a major collapse?

Some analysts are concerned about a repeat of gold’s previous sharp rallies in the late 1970s and in 2011, after which prices collapsed by 55 percent and 33 percent in the following five years. In addition, the runaway price rises that many gold enthusiasts are predicting may not materialize; investors such as billionaire John Paulson were wrongfooted after the 2008 crisis when inflation did not appear.

For those looking to buy gold, a useful reference tool is the Volatility Index or VIX. By analyzing future risk and investor behavior, the VIX provides a 30-day projection of the expected volatility likely to be experienced by the major markets – a vital instrument in today’s climate.

Based on performances in the past, a drop in the VIX should be followed by a rise in gold prices. Conversely, a rise in the VIX will normally occur prior to gold prices dropping. That’s why investors looking to buy gold need to watch the performance of the VIX carefully to ensure they enter the market at the right moment.

Investors should not sprint to gold just because the prices are rising. Any trade or investment decision needs to be influenced by a bigger strategy and lead to the ultimate goal. A common mistake is investors acting hastily and making rash decisions, instead of taking a step back and thinking how they can best take advantage of the market while at the same time not losing sight of their ultimate financial objectives. By understanding this simple point, investors and traders will be best positioned to make effective use of future gold price movements.

 

By Arbaz Khan

aspiring entrepreneur and financial market enthusiast with a zeal to learn and get better with each passing day

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