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Another lockdown, another gold rush?

Gold is seen as an evergreen, safe-haven investment


Gold’s roller-coaster journey seems to be swerving into an upward spiral following the surge in infections and onset of lockdown and other restrictions. On Wednesday, the price of 24-carat gold went up to Rs 50,810, a jump of nearly 300 rupees compared to the previous day.

Gold hit its lowest in recent months on March 31st at just over Rs 45,000 and then has been almost steadily rising so far in April, in line with the spurting COVID incidents from across the country. 

A simple thumb-of-rule for gold prices is this—when there is economic uncertainty, gold prices go up, as investors and even common people turn to it as a trusted investment mode. Economists call it “an informal insurance mechanism” particularly referring to Indian households trend of keeping gold and jewellery in lockers or the puja room in anticipation of a rainy day. 

And that seems to be playing out again. Since 2018, gold has been going up as economic slowdown gripped India, while worries over a US-China trade war was the global factor.

For example, in November 2018, gold was around 30,000 rupees in India. Then the slowdown pushed it up on a steady trajectory, peaking at 57,000 in August last year. The pandemic and the lockdown months last April-May-June saw the price jumping up by 45 per cent.

“The global COVID-19 pandemic (has) fuelled safe-haven investment demand for gold, offsetting marked weakness in consumer-focused sectors of the market,” said a report by World Bank last year.,

After dropping in recent months in the wake of renewed business confidence, it seems time has come for investors to turn towards the yellow metal yet again. While globally, a weaker dollar and lower treasury yields of the US government is touted as the reason, for India, the catastrophic health situation could be the sad catalyst.

As far as global traders go, the auction of 20-year US Treasuries later today could be significant, as it will be an important indicator of global demand, and in which way the global price of gold could fluctuate. But domestically, gold seems to be on a steadier wicket, with uncertainty mounting.

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