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Gold prices: the glitter hasn't worn off just yet+ Launching Zapp 5

Gold prices continued to decline this week falling as much as 75 per gram over the last 5 days, taking the total drop in prices to 245 per gram over the last 90 day period. Gold prices had a phenomenal run this year up almost 25% in INR terms till September driven by a combination of increased global gold prices, increased duties, and currency impact. It has since corrected by around 5%. In today's piece we try to analyze how gold has fared to date, what drove its performance this year, and what could possibly lie ahead.

Before we dive into the price movements that gold has seen, it helps to analyze what drives gold prices. Gold historically has been seen as a safe haven, meaning in times of economic turmoil, people turn towards buying gold as a store of wealth (Some other currencies including the Japanese Yen, and now the Australian dollar share the privilege). This increased demand moves the price upward driving returns for the people holding it. Global macro uncertainty stemming for escalating US-China trade situation, combined with slowing growth, and the weakening return profile of other instruments (like negative yield bonds) had begun bringing money into gold.

However things on the global stage aren't looking as bleak as they once did. While that is good news in general, for an asset class that's supposed to do better in bad times it comes as a bit of a bummer. US Jobs numbers announced recently beat wall street consensus significantly (266K vs 187K) bringing US unemployment down to its lowest levels since 1969. This combined with potential calming of US China tensions if tariffs are postponed this Sunday makes the case for a more positive global outlook, and a slightly negative outlook for gold.

But all isn't lost for the yellow metal. Wall Street for one, increased their bullish bets on gold by almost 9% last week, signalling renewed confidence in gold post the correction. And while a few positive pieces of news are certainly emerging, the fear of being this late in the bull cycle combined with a relatively volatile US leadership will continue to create demand for gold. The coming week may continue to see volatility given key events like the Fed's meeting and the pending decision on tariffs, but the medium term story for holding gold seems pretty much intact.

(Disclaimer: This is an educational post presenting our view on the issue, and is not meant to serve as financial advice.)

Zapp 5 (Day's 5 top stories in 3 lines or less.)

1. Sensex hit one month low: The Sensex fell more than half a percent continuing its losing streak. IT stocks drove decline driven by a strengthening rupee.

2. Electricity demand falls for 4th straight month: Demand declined 4.3% in November continuing a 4 month streak. Falling electricity demand is often perceived as an indicator of weaker industrial production and a possible slowdown.

3. ISRO gears up for 50th mission: ISRO's polar satellite launch vehicle will launch on its 50th mission today. Radar imaging satellite RISAT 2BR1 which aims to strengthen border surveillance will be onboard the launch vehicle.

4. Employability of Indian graduates jumps to 47%: The number while still dismal, jumped from 33% in 2014. MBA pass-outs were found most employable with 54% making the cut.

5. Democrats announce two impeachment charges against Trump: Trump was under scrutiny for making military aid to Ukraine contingent on information on political rival Biden. He has been charged with abuse of power and obstruction of Congress.


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Dec 11, 2019

Zapp 5 is great ! Article on gold is pretty informative.

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