Gold is turning out to be an awesome asset over the last one year for investors. The metal has always been an object of desire and fancy for Indians and the Gold prices India surged to an all-time high of Rs 48000 per 10 grams in May even as the retail markets remained shut on the extended lockdown. However, Gold was active on the commodity derivatives exchanges via Commodity brokers in India.  Global Gold prices hit a seven-year top amid volatile equities. Gold saw good gains as global Coronavirus cases hit more than 6 million marks. Will the physical Gold demand surge and will the yellow metal gain further in the coming months?

According to the latest update from the World Gold Council (WGC), higher risk and uncertainty combined with lower opportunity cost will likely be supportive of gold investment demand in 2020. This could offset the negative effect of lower consumer demand on gold performance as economic activity contracts. Gold`s behavior thereafter may depend on the speed of the recovery and the duration of monetary policy and fiscal stimuli.

Ultra-low interest rates in the US are a hugely supportive factor for Gold. The US Federal Reserve Chair Jerome Powell has recently said that the Fed remains reluctant to impose negative interest rates but confirmed that the central bank may take additional steps to avoid an extended period of low productivity growth and stagnant incomes. He also noted that the Covid-19 health crisis raises longer-term concerns and that the Fed sees little chances of a quick recovery.

Excellent demand from exchange-traded funds or ETFs also boosted the metal though rising equities capped the gains. According to the World Gold Council (WGC), Gold-backed ETFs and similar products account for a significant part of the gold market, with institutional and individual investors using them to implement many of their investment strategies. 

Flows in ETFs often highlight short-term and long-term opinions and desires to holding gold. The data on this page tracks gold held in physical form by open-ended ETFs and other products such as closed-end funds, and mutual funds. Most funds included in this list are fully backed by physical gold. Inflows into gold ETFs rose for a sixth straight month in April. Globally, gold-backed ETFs (gold ETFs) added 170 tonnes (t) – net inflows of US$9.3 billion, rising by +5.1% – in April, boosting holdings to a new all-time high of 3,355t. Assets under management (AUM) also reached a new record high of US$184 billion. 

The mining supply of Gold is likely to be getting hurt due to lockdowns. This is another reason why the metal has moved up at a rapid pace over the last few weeks. Prices jumped even as retail gold buying or demand was almost absent in major markets like India. Total Gold supply in the March quarter of 2020 fell 4% as coronavirus lockdowns hit mine production and gold recycling. Operations were halted at many projects in an attempt to stem the spread of the virus. 

Conclusion: 

A pandemic like the Covid-19 has all the ingredients to push up Gold prices higher given that the extended threats of lockdowns and depressed business and consumption activities would normally push up the safe-haven demand for the metal. However, with massive destruction in end-user demand in India, the commodity could face resistance in the near term after hitting around seven-year high. Indian Gold prices are up by around Rs 10000 per 10 grams over the last six months or so and could be in for a period of stability as the national lockdown ends and economic activity resumes in a phased manner. However, the awesome strength witnessed by Gold in testing times has likely set the stage for a further up move in the coming months. The metal is now not very far from its all-time high above $1900 per ounce in world markets and if the broad trend in prices is considered, the metal is standing on firm ground.  In 2019, the COMEX Gold prices recorded their best performance since 2010, rising by 18.4%.