THE GOLD RUSH – WHO IS BUYING?

Naresh and Shruti got married on 30^th June, the last “auspicious day” till November for marriage as per the Hindu calendar. Naturally, being in the midst of Covid, it was very low key with just 15 attendees. All the money spent was on ensuring safety of all and buying gold for the occasion was the last thing on the mind. In fact the young couple did not buy any new gold.

Just like this couple, there are scores of couples who have got married without even a cursory visit to the gold shop, which as such, in many cities remain shut. So, when it was peak marriage season, not many bought gold and now the season, as such is over, so people are not buying. The question therefore which comes to mind – if no one is buying gold then why are gold prices touching the sky – international gold prices touched a eight-year high.

In June, which in a normal time would have been peak season for gold, imports tanked big time. India, which is the world’s second largest consumer of gold imported just 11 tonnes of gold, down 78% (YoY). In value terms, June imports dropped to $608.76 million from to $2.7 billion a year ago. The fall in March, April and May was to the tune of 62.6%, 99.93% and 98.4%, respectively. Gems and jewellery exports declined 82.46% during April-May.

And China, the largest importer of gold too is not buying. Its May net gold imports via Hong Kong fell below export for the second straight month and the same in expected for June too. When the two largest gold buyers in the world are not buying then why is gold racing ahead to new heights?

Looks like the gold demand has shifted from the East to the West. This has been the trend every time there is a crisis; US added more than 700 metric tons of gold this year, the highest such pile up of the yellow metal since 1993. It was almost panic buying after the lockdown was imposed almost all over the world and flights were suspended.

And then apart from this physical piling up, Exchange Traded Fund or Gold ETFs buying has soared like never before – over 600 tonnes total holdings, surpassing physical gold buying on India and China together. Buying in these took off from June and since then gold prices have been on a boil. So, the demand for gold that we see pushing up the price today is purely driven by investment demand. And the buying in such massive scale is by two countries – North America and Europe.

Gold analysts say that prices are now trapped in an ascending triangle and a break-out would imply continuation of the uptrend.

So, do you think you have missed this ETF bus? The fourth tranche of sovereign gold bonds 2020-21 opened yesterday, 6^th July and will remain open till Friday, 10^th July. The issue price is fixed at Rs.4852/gms and discount of Rs.50/gm is given to investors who apply online and pay digitally.  The bonds offer an interest rate of 2.5%. Any capital gains on these bonds at maturity is tax free and the bonds have a maturity period of eight years, with option to exit after the fifth year.

It’s currently a good hedge against all the uncertainties – the pandemic and economic. Till a vaccine comes and the economy starts bouncing back, most gold analysts expect the prices to remain high. After the Lehman collapse in 2008, gold prices soared from $700/ounce to $1900/ounce in 2011 but after than it was on a steady decline till Dec 2015.  But what could topple the gold cart is sudden selling of gold by some central bank to mitigate their economic crisis or if risks rise all around and investors sell even the ETF to hold cash.

Every investment is a risk in current times; well, life itself seems to be at risk!