One year of lockdown: Gold run in pandemic times

At 8 pm on March 24, 2020, Prime Minister Narendra Modi made a landmark announcement — a nationwide lockdown for 21 days to curb the spread of the coronavirus pandemic, in the country which was extended a few times before unlocking the economy.

This unprecedented event led to a transformative year for individuals, businesses however created several opportunities for investors of equities and other asset classes.

In commodities, especially gold witnessed a sharp rally, which was led by uncertainty gripping the world and investors rushing towards safer havens.

In this one year of lockdown, gold made a life time high of Rs 56,191 in the domestic markets and $ 2075 per ounce levels internationally.

In tow, silver also made a life time high of Rs 77,949 levels and seven year high of $29.84 per ounce levels in international markets.

The investment demand in bullion also increased as gold is considered a hedge against inflation and geo political tension in year 2020 – 2021 also led to a spike in prices.

Interestingly, one also noted a shift in investors’ stance as in the year 2020, the physical demand of gold and silver were not so high but demand of ETF were very high.

In 2020, Gold ETFs have added more than 1,000t for the first time ever, surpassing the 2009 record of 646t. Collective gold ETF flows have added USD 57billion YTD through October. Holdings in both tonnage and value terms continue to reach new highs North American funds represent nearly 2/3 of global net inflows on the year.

This reflected the positive sentiment among investors and renewed belief in gold as a great investment option by even global investors.

Gold prices also took cues from depreciation of the major currency majorly from US dollar. The dollar index declined sharply in YTD by almost 7% in year 2020.

It has been a year since equities and gold both reached their all time highs. At this time the world is dealing with the second wave and uncertainty across the globe is making investors fearful yet again after some subdued action seen in previous months.

Now, central banks across the world have been augmenting their gold reserves every year but 2020 was different in a state wherein it was a global pandemic.

Central banks added 374.1 tonnes in the first six months of 2020, helping push total bullion demand to a three-year high, according to the World Gold Council.

In 2019, central banks accumulated over 668 tons in gold purchases, which was more than 2018’s record highs.

The trend is expected to continue, with a recent survey of central banks showing 54% of respondents expect global holdings to climb in the next 12 months, according to the World Gold Council.

The World Gold Council is now of the view that central banks will continue to augment their gold reserves. We also believe in this school of thought.

Recently many economies pumped money in the economy by stimulus packages to revive the economy from the pandemic, but this could be a reason of inflation and Fed also keep interest rates lower till year 2023. The step is good for bullions and we expect the upside trend in gold and silver to continue further.

(The writer is Vice-President, Commodity and Currency Research, IIFL Securities, Views expressed are personal)