Gold & Silver

Still languishing, gold set to shine in second half of 2019

G Chandrashekhar | Updated on May 28, 2019 Published on May 28, 2019

Gold is facing an unusually tricky situation. There are supportive factors in place, but the positive impact on its price is negligible. Even increasing risk aversion has not lifted the yellow metal. Poor price performance is seen causing anxiety and unease among traditional investors many of whom are die-hard gold bulls.

Geopolitical tensions, economic uncertainties, floundering trade talks, central bank purchases and similar usually supportive factors have not helped the metal decisively break above the $1,300-an-ounce barrier. It is still languishing at around $1,280-1,285/oz levels.

Central banks of several countries have recently purchased gold. China and Russia bought 15 tonnes each in April. Others include Turkey and Kazakhstan.

A key reason why gold is not budging from the current levels is the role of financial investors themselves. Even in these times of uncertainty, they are not ready to bet big on the yellow metal. If anything, gold ETFs have seen some outflows recently. There is palpable pessimism about gold among speculative financial investors as evidenced by liquidation on long positions, as per a CFTC report. How long the sentiment will last is anybody’s guess.

Belief is gaining ground that gold’s safe haven status has been taken by the US dollar. It is recognised that the dollar and gold have an inverse relationship. Many are betting on the dollar in the context of the US-China trade dispute.

Gold’s poor price record of late is dragging down other precious metals, too. Silver, platinum and palladium have also seen ETF outflows in recent days. Net long positions in platinum have been completely squared off while net short positions in silver have been created. Interestingly, punters place high hopes on the new Indian government, which they believe will put money in the hands of the rural population, which, in turn, will spur demand for the precious metal. Of course, it is well known that India is a large importer and the country’s rural areas are large consumers of the precious metal for a variety of reasons, including marriages, festivals and so on.

India’s gold imports have spurted in the last two months because of the marriage season and anticipated demand from Akshaya Trithiya bargain hunters. April arrivals were an estimated 58 tonnes. The firming up of the rupee has made the metal less expensive locally, helping boost sales.

On current reckoning, the outlook for gold is constructive. In the months ahead, global economic growth is expected to remain subdued, which, in turn, will negatively impact the stock market. It is in such an eventuality that gold’s traditional safe haven status will assert itself. Investors in equities will move to gold, providing a boost to prices that are currently languishing. Silver, which usually rides on the coattails of gold, will benefit, too.

The key point to watch would continue to be the demand side. There is risk; demand in both India and China may disappoint. The Chinese currency is weakening, making imports more expensive. In India, unless the rural areas witness a marked increase in incomes, demand may be muted.

The new government will present a Budget sometime in July. Efforts will be made to lobby policymakers for a reduction in customs duty; but New Delhi is most unlikely to succumb given the huge fiscal challenges and on revenue considerations.

The writer is a policy commentator and commodities market specialist. Views are personal

Published on May 28, 2019

A letter from the Editor


Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Support Quality Journalism
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.