The year 2019 turned out to be a landmark for gold price movement. The yellow metal made a “super jump” of over ₹8,000 per tola (10 grams) in the Indian spot market, while internationally it jumped by $200 an ounce during the year that ends in a few days.
Briefly though, gold prices hit an all-time high of ₹40,000 levels in certain spot markets in the country, scaling up from about ₹31,500 at the beginning of the year.
Safe haven asset
Global geopolitical and economic uncertainties, coupled with India's own economic and political developments, kept investor interest alive for the safe haven asset.
International factors such as geopolitical tensions arising from the US sanctions on Iran, scepticism over US-North Korea relations and trade tensions between the US and China weighed on the global gold rates.
Central banks around the world also started stockpiling gold. According to World Gold Council data, gold purchases by central banks during 2019 jumped over 43 per cent to 629.4 tonnes (up to November 2019) as against 437.5 tonnes last year. Central banks of Turkey, Russia, Poland and China among others made heavy gold purchases during 2019.
Global gold rush
Prithviraj Kothari, President, India Bullion and Jewellers Association Ltd (IBJA), termed it a global gold rush.
“In the past two years, central banks have been buying quite heavily. As a result, consumption of gold matched the production. Also, the interest rate cycles were crucial. In the past two quarters, they cut the interest rates. This also influenced gold prices. People rushed for risk cover, which was reflected in the Indian prices and the demand pattern,” Kothari told BusinessLine .
India, despite being among the top gold buyers globally, has remained a price-taker. However, India's imports are predicted to be stable, at around 600-650 tonnes, while a chunk of old gold came into the market during April-November, when the prices peaked. Currency depreciation also helped gold rise.
Also, the economic slowdown and weakness of financial institutions such as the PMC Bank crisis and non-performing assets (NPAs) of public sector banks aided the yellow metal’s rally. But it could not sustain at the peak levels on account of improved economic and employment data from the US, coupled with government reform measures in India.
30% returns
“Gold has given a stellar return of 30 per cent in 2019 and silver 15.9 per cent. The returns in first half were mainly due to weak economic data but in the second half, following the recovery in the US economy and trade talk progress between the US and China, gold managed to sustain its first six months’ gains. A strong dollar during second half of the 2019 also limited the upside in gold and silver,” said Dinesh Thakkar, Chairman and Managing Director, Tradebulls.
Bullion experts, however, see thin prospects for any immediate decline in gold prices from the current levels.
Haresh Acharya of Parkar Bullion in Ahmedabad said: “We have seen a super jump from ₹31,000 to ₹40,000 in about a year. Overall slowdown was the biggest factor. When there is geopolitical uncertainty or weakness in stock markets, gold demand spurts.
“In India, we faced two remarkable things last year, sharp price hike and weakening of the stock market. This prompted the middle-class to liquidate their gold holdings for quick liquidity in financially stressed times. But the current pause in the gold price rally appears to be temporary because central banks may resume gold purchases in the new year, which also signals the start of the financial year in many countries. Also, US elections will be a challenging one with lots of uncertainties,” he said