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Home / Markets / Commodities /  Why gold prices may still rise despite 25% jump last year

The year 2019 saw gold coming out of a six-year trading range and posting strong gains. Gold prices rose 18% on COMEX and in India, on MCX, gold surged 25%. Despite the sharp surge, many analysts expect the bullish momentum to continue going into 2020. On MCX, February gold futures closed at 39,100 per 10 gram on Tuesday.

"Although it won’t match 2019 gains we expect a gain of 12% to 13% in 2020. Bullish factors include central banks buying as the low interest rate environment will push the bankers towards safety, weakness in dollar index and a surging global debt," said Ravindra Rao, head of commodity research at Kotak Securities.

In dollar terms, he expects, "gold to test $1650/ounce and extreme zone would be $1700/ounce in 2020"

With persisting global risks, "we believe that investors may be willing to remain invested in gold however inflows may pick up pace only if there are new factors which could push price back above the key $1560/ounce," he added.

Geopolitical tensions, the months-long trade war between China and US, buying from central banks and an increase in investment demand for gold are some of the factors that have been attributed for the sharp surge in gold prices. In India, the government had increased the import duty levied on gold. Gold prices in India include 12.5% import duty and 3% GST.

The sharp surge in gold prices however impacted gold demand in India. "In 2019 the Indian demand witnessed a sharp drop when gold hit an all-time high of 39885/10 gms on MCX. This caused domestic price to trade at a steep discount to international prices and also widened the spread in futures market," Mr Rao said.

Gold demand perked up when prices corrected in the n the last quarter of 2019. "The situation however improved as correction in price in the last quarter of 2019 has increased buying interest. We expect the same to repeat in 2020 with high prices impacting the demand. Good demand can be seen on corrections," he added.

The outlook from global financial majors remain mixed. JPMorgan Chase has suggested shorting gold, betting that global economy will gather momentum in 2020. “If cyclical or policy risks recede into 2020, it would be difficult for asset allocators to not accept higher equity weightings," the analysts wrote.

Among the bulls, Goldman Sachs Group Inc. and UBS Group AG see prices climbing to $1,600.

"With persisting global risks, we believe that investors may be willing to remain invested in gold however inflows may pick up pace only if there are new factors which could push price back above the key $1560/ounce," said Mr Rao of UBS.

(With Agency Inputs)


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