Huge consumption demand for Gold in March 2021.

In continuation to our last post on 30’th Mar’21, when we expressed our bullish stance on gold, it has rallied close to 3%. There was a huge consumption demand for Gold in March 2021, breaking all previous records. In Feb’21, India imported close to 56.5 tons of Gold. This is highest for India for any month since April’19. The big surprise came in March’21 when India’s gold imports surged by 471% on an annualized basis and was 160 tons.

Goldm Jun Fut in India is closer to 45700 on MCX and international prices are at $1738. If they stay above $1725, then the next level to be tested is $1765, which is a 3-4% upside from current levels.

In our opinion, we are extremely bullish on gold because of the following reasons:

1. Higher Government Debt across the world – Please find approximate current debt of few major countries in the world,

This high level of debt leads to fiscal uncertainty and inflation outbreak. This is positive for gold prices. Also, as the size of Fed balance sheet keeps increasing because of debt monetization, it leads to an extended time and era of negative real interest rates, which is again a bullish case for gold prices

2. Higher Stimulus – Since April’2020, governments across the world have come out with huge stimulus packages to support their economies against the ramifications of Covid 19 pandemic. The case in example is of US. It has given close to $8 trillion dollars in total relief packages since Mar’20. This has again increased debt and creates inflation, which leads to gold buying as a safe haven. Also whenever there is a major relief package announced by US Fed, it leads to a lower dollar value which is a spur for higher gold prices.

3. High Demand – With prices of Gold having corrected by 20% since Aug’20, the demand has spurt in two major consuming countries, India and China. Data and reports suggested that Switzerland, which is world’s biggest gold refining centre, exported huge quantities of gold to Thailand in 2021, which is a regional trading hub in Asia.

In Feb’21, India imported close to 56.5 tons of Gold. This is highest for India for any month since April’19. The big surprise came in March’21 when India’s gold imports surged by 471% on an annualized basis and was 160 tons.

This support by high demand leads to a base formation in gold prices and it gears up to move higher when other supporting criteria’s moves in its favor.

4. Negative Real Yields –  As highlighted above in points 1 and 2, negative real yields with high inflation and lower interest rates are here to stay and this will drive Gold to new highs. We expect this to continue for an elongated time for at least 3-5 years.

5. Geo Political Risk –  World has not been a safer place in last so many centuries and current times are no different.

The world saw World war 1, World war 2, Cold war, Vietnam war, Afghanistan war, Asian crisis, Gulf war in the last century. This century started with dot com bubble burst, 9/11 attacks, Global financial crisis, Covid 19 pandemic, etc. All these scenarios lead to investors and liquidity rush to Gold and the coming times will be no different, with many geo political risk coming to life.

Hence , with so many factors turning positive for gold in last couple of years, we would like to conclude that it presents a decent opportunity to invest for medium to long term at the current juncture.