Everyone wants to own gold

Gold does very well as a calamity hedge, and I think we would all agree that this is definitely a calamity right now.

In times of uncertainty, economic and otherwise, gold is considered a safe haven investment, a fact which is further being corroborated by the current movement of gold prices and demand for all forms of gold investments, be it bullion, paper gold, spots and futures.

Gold performs well in any situation- inflation or deflation. We need not worry. And currently, we all know that a ton of money has been pumped into the market for recovery.

And when you look at the stock market over the last few weeks, the stock market’s gotten boastful.

But, the yellow metal, the traditional haven of choice, has increasingly found its fate in the greenback as a competitor over the past two years when calamity struck, whether it was Covid-19 outbreaks, tumbles on Wall Street or breakdown in U.S.-China trade endeavours. The dollar and the yellow metal were considered to be inversely proportional to each other.

The same phenomenon was on a display again on Monday as both U.S. gold futures and the spot price of gold fell under the $1,700 support level, while the dollar index regained its balance on above the key 100-point mark critical to dollar bulls.

The US dollar strengthened on Monday as appetite for the US dollar as safe-haven currency increased amid concerns over economic reopening.

Gold prices extend the rebound, as the risk-off sentiment seeped into Europe amid fears over the second wave of the coronavirus outbreak and escalating Australian-China trade tensions.

The dollar has been a major barrier for gold. Gold prices are very much into a consolidation phase, thanks to the US dollar.

Furthermore, The White House is suffering a mini-outbreak of Covid-19 with Vice President Mike Pence’s Press Secretary Katie Miller testing positive, while Anthony Fauci and Robert Reid, two other senior health officials on the coronavirus task force, are on self-quarantine, according to reports. Pence and President Donald Trump have tested negative so far.

On the global front, both China and South Korea reported new spikes in coronavirus cases, with Seoul recording 34 new cases, its biggest single-day jump in about a month. In Germany, the closely-watched reproduction rate Covid-19 had climbed to 1.1, meaning 10 people with the virus could infect on average 11 others.

The US dollar strengthened on Monday as appetite for the US dollar as safe-haven currency increased amid concerns over economic reopening.

Events in Korea over the weekend brought a reminder of the risks of second waves of coronavirus infections, with Seoul closing down all nightclubs after 34 new infections were tracked down to one club.

But there remain much fear in the market about how the post Covid-19 recovery will play out, none more so than assessing the challenges economies face removing restrictions amid the coronavirus pandemic.

With many countries in the West attempting to reopen their economies, attention has turned to whether new infection rates will remain low as mobility picks up.

A recent study by the World Gold Council (WGC) found that gold figures in the top five investments; people are investing more in the yellow. On average people invested 28 per cent of their income in gold in 2016, which has gone and up to 33 per cent in 2019. It also found that most people preferred to invest in gold due to “ease of buying”.

In the domestic market too there are renewed worries of India’s fiscal and further possible lockdown only going to deteriorate this. The ballooning fiscal deficit moved to staggering 5.5%+. This is the real dilemma for the Government of India- to arrange the deficit as high as 4.75 lac crore- which seems difficult as the GST and al otter taxes are depleting fast.

The concern surrounding an upward creep in real interest rates, as an extremely weak economy forces price expectations lower while the Fed stays steadfast to its commitment to keep Fed Funds above zero, also contributed in reducing length.

The escalating tensions between U and China will give sudden pop-up rally to gold from$1700-$1715 initially and later maybe $1730 but a stop is crucial at $1688.

All this suggests that you may want to own gold for what’s happening now. It would certainly help if you had gold in your portfolio for the grim economic events that are yet to unfold. And you clearly want to own gold for those things we hope that never happens.

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