Gold up 28% this year; will the trend continue?

Gold prices have had another great year with the rates hitting all-time highs in 2020. The yellow metal has emerged as one of the best-performing asset classes so far for investors.

It has rallied around 28 percent this year in India and 23 percent in global markets in 2020.

A major uptick was seen in gold prices from mid-March when the COVID-19 pandemic hit. Investors flocked to the yellow metal as a safe-haven investment after the virus-led lockdowns brought global economic activity to a standstill.

In August, gold hit an all-time high of Rs 56,200 on MCX. However, after that, the metal has consolidated a bit and is now down 10 percent from the record high on COVID vaccine progress.

Despite the fall, analysts advise continuing investing in the yellow metal.

Brokerage HDFC Securities believes that gold prices are headed higher for the next year with targets of $2150 and $2390 (per ounce) on concerns over slower-than-expected global economic recovery along with the higher amount of stimulus measures.

“Investors should appreciate that gold as an asset class does not provide regular returns year after year but lumpy returns every 3-5 years. Hedging against inflation and currency is one of the primary purposes of investing in gold,” said HDFC. It added that investors can look for investment avenues like gold ETFs, digital gold, sovereign gold bonds, apart from owning physical gold.

Global brokerage Credit Suisse expects gold to continue its upward trajectory and average $2,100/oz in 2021, peaking at $2,200/oz in the third quarter of CY21 (Q3CY21), but down from their previous estimate of $2,500/oz.

JPMorgan also advises investors to consider diversifying their portfolios to gain exposure to assets denominated in other currencies.

Meanwhile, Axis Securities has a ‘neutral’ stance on gold.

“Overall investors’ sentiments have improved. Now, investors are betting higher on riskier assets like equity, these improved sentiments were further stoked by the optimism over the COVID vaccine. All these developments are keeping the gold prices under pressure. The improvement in the global economy and the likelihood of more predictable trade policies will further keep the gold prices range-bound. However, lower interest rates and dovish policy stance could continue to attract investments in gold,” the brokerage said in a recent note.

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