Gold continues to look attractive

When gold rallied, majority of the market layers jumped into the bull’s band wagon. Now that gold is showing bearish sentiments, analysts and traders have revised their forecasts for gold, but nonetheless still expect prices to recover from current levels. There are some who even believe that gold will reach new highs this year.

Gold has benefited from action by central banks to slash interest rates and pump cash into the economy, which raises the threat of inflation and reduces returns on bonds, a competing asset class. But while global economic recovery may weaken the dollar, helping gold by making it cheaper for buyers outside the United States, it also is likely to raise bond yields, making gold less attractive opines the bullion king of India.

The safe haven asset appeal of gold was totally perceived and exploited by investors during the pandemic when markets hit an all-time with no sign of recovery. The global economic scenario was bleak and therefore investors rushed to park their wealth in the metal, due to which gold saw record highs of $2072.50.

But as news of successful vaccine rollout was out, gold prices started dipping. A vision of positive and gradual economic growth, compelled investors to diversify their money into others assets likes equities that generally shoot up over economic growth and boom.

Lately also gold was significantly influenced by the price movements of other asset forms.

Benchmark U.S. Treasury yields rose to their highest levels since March on Friday, while inflation expectations edged up to a six-year high.

Higher inflation boosts gold but also lifts Treasury yields, which in turn increases the opportunity cost of holding bullion.

The week opened with dampened trades due to the holiday After Presidents Day Holiday on Monday, in the US, the Dow Futures indicated +244points gain, on sizeable stimulus with senate hope.

China is closed due to the Lunar New Year break. The Chinese Holiday will be in progress for another two more days and hence data inflow will be low.  But US retail sales data for Feb and PPI will be key at 7.00 pm IST. Gold trying to take out $1815-1820 barrier and, in the meanwhile, silver moved to $28 which is eluding since last week. US markets on life highs and ending the run up on Covid relief funds coming from Biden’s admin.

U.S. President Joe Biden pushed for the first major legislative achievement of his term on Friday, turning to a bipartisan group of local officials for help on his $1.9 trillion coronavirus relief plan.

U.S. Treasury Secretary Janet Yellen on Friday urged G7 finance leaders to “go big” with additional fiscal stimulus to recover from the COVID-19 pandemic.

Physical gold demand eased last week in India as volatility in domestic prices put off buyers, while interest for silver remained strong in Singapore and Japan.

Retail Sales data will likely be our biggest data point, and focus will be on the discussion of minutes from the most recent FOMC meeting, released on Wednesday. The lack of scheduled data doesn’t presuppose a calm market, of course. Presuming the second impeachment trial of Donald Trump is wrapped up (or close to it) by Tuesday, all eyes and effort will be on the efforts to pass the Biden administrations COVID-19 rescue package.

We expect gold to perform well in 2021, although at a slightly more subdued rate compared to 2020 confirms Prithviraj Kothari of RSBL.

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