After a dull year, Gold may recover some lost glory in Samvat 2075

After a dull year, gold is expected to recover some of its lost shine in the new Samvat, which is beginning from November 8. This comes on the back of an almost eight per cent rise in Samvat 2074, which had seen huge volatility.
 
Last Samvat, international gold prices had spiked to above $1,360 an ounce before falling to below $1,200. Currently, it is around $1,235 levels. A similar trend was seen in India, but domestic gold prices ended higher mainly due to a weak rupee.
 
This recovery in gold is only the second such in six years (see table).
 
The bullish bias for gold in new Samvat is mainly due to the likely weakness of dollar, safe haven demand and favourable supply-consumption dynamics.
 
Dollar has stolen the thunder for the whole of 2018 so far and with further hikes in interest rates by the US Federal Reserve on the anvil, the dollar may remain firm in the next few months.
 
T Gnanaseker, director, Commztrends, explains, “Due to the equity market rout gold has come in favour and investors have started building positions again. Also, the dollar could peak sometime in the first quarter of 2019 when further rate hike could endanger the US economic recovery (and this could further support gold).”
 

On the consumption side, he feels that investment demand could rise much higher in the coming year.
 
A study by the Thomson Reuters too indicates that demand for gold will increase. The study suggest that global economic growth is expected to moderate gradually in 2019 and 2020, due to slowing economic expansion in both advanced and developing economies. This will be a reason for gold to shine.
 
The demand-supply dynamics are also seen to be favourable.
 
Debajit Saha, Senior Analyst - Precious Metals Demand, GFMS Thomson Reuters explains, “Global physical supply is expected to grow by 2.2 per cent year-on-year to 4,509 tonnes in 2018, and remain stable around the same level in 2019. Physical demand is expected to grow by 1.4 per cent in the current year, while we are moderately bullish in 2019 as we expect the demand to grow by 3.9 per cent. We estimate the average gold price to settle around $1,267 per ounce this year and $1,285 in 2019.”
 
How prices will behave in India however will depend on the rupee’s movement. “This quarter, we expect the price to stay around Rs 31,600 -31,800. For next year, our initial estimate is that average price will remain around Rs 31,100 per 10 gram (2.7 per cent higher than average prices seen in Samvat 2074),” says Saha.
 
Gnanaseker, however is more bullish. He says, “We expect gold to hover around $1,475-1,500 by next Samvat and in the local markets around Rs 35,000-36,000 per 10 gram. The domestic price could rise relatively less as we foresee a strengthening rupee post first half of 2019 as the dollar could peak in the first quarter of 2019 when further rate hike could endanger the economic recovery there.”
 
Finally, the yellow metal usually moves in a cycle that reverses every decade. It now seems to be in the last leg of consolidation which began after its fall in 2011 from the peak levels of $1,900.