Fading Shine Or A New Golden Era?
How the Pandemic has Affected the Price of Gold
Over the past few decades, Gold has earned its reputation as a “safe-haven asset”, for it has not only been a store of value, but has maintained its purchasing power for over thousands of years. As an asset class, the price of gold has proven to remain stable while all other investment instruments are subject to extreme volatility and unpredictable crashes in times of turmoil.
India is the largest importer of bullion and consumer of gold in the world, and accounts for a quarter of the world’s total consumption. Not only does gold have a cultural significance in Indian households & special occasions, but is also seen as a symbol of power, status and wealth. Primary purchase and usage of Gold in India is in the form of Jewellery or as a Long Term Investment Asset. Gold rates in India vary on a daily basis depending on factors like demand and supply, global market scenario and Indian currency fluctuations.
In the past 1 year, the pandemic has changed the world, along with the global markets escalating some of the existing hitches when it comes to investments. However, in a lot of ways this has set up gold to benefit as an essential portfolio diversifier, which has made its prices soar high.
Looking back at 2020, the year turned out to be a record-setting year for gold in India. Most investment analysts have predicted that a ‘New Golden Era’ has begun. Rising market volatility in other investment instruments, economic uncertainty & instability has majorly steered investors to prioritize safe haven assets like gold in order to hedge the economic distress caused by the Pandemic. Gold being a highly liquid yet long term store of value helps investors meet core goals like safety, stability & subsequent returns. That being said, the rise of Gold Prices in India has also been a result of the depreciating rupee value and increased import duty during times of restriction.
Gold Prices, after seeing a steep upward climb last year with an all-time high of ₹ 56,018 per 10 gram noted on the MCX as on August 7, 2020; However, as 2021 came around the demand and price both have seen a great fall. The price has seen a drastic 24% fall since August and is back to its pre-pandemic rates of ₹ 46,000 as of April 2021. In this scenario, business and investment analysts believe that due to high government debts and the chance of an economic collapse, India may not be able to stay under complete lockdown for a larger time period, which will cause an increase in gold prices in a short term.
The ongoing situations and global recession that has followed after COVID-19 has led to a substantial increase in the global demand for gold, gold prices and the volatility of returns. Gold tends to be uncorrelated or even negatively correlated with other types of assets or investments, which tend to lose value in such periods. This quality makes gold investment an extremely important diversification asset in portfolios, and similar spikes in gold prices and returns volatility have been witnessed in previous world crises, while the overall gold market remained relatively stable. This indicates that Indian investors will continue to seek refuge in gold for the coming times, thus simultaneously pushing Gold price upwards until the world economies and global market outlook stabilizes.