Gold prices rise above Rs 49,600: Here's what gold prices could be in 2021

New Delhi: Gold on Thursday gained Rs 385 to Rs 49,624 per 10 gram in the national capital, reflecting gains in global precious metal prices. Silver also witnessed buying as it gained Rs 1,102 to Rs 66,954 per kg, from Rs 65,852 per kg in the previous trade.

In the previous trade, the precious metal had closed at Rs 49,239 per 10 gram.

In the international market, gold was trading with gains at USD 1,878 per ounce and silver was flat at USD 25.80 per ounce.

Prof Arvind Sahay, Chairperson, India Gold Policy Center at the Indian Institute of Management Ahmedabad (IIMA) told Zee Media that Gold prices in top 17 consuming countries are higher by 22% on average, varying between 13% to 60%. The gains were driven by strong investment demand. 

The reliance on gold as a safe haven was truly evident when the pandemic hit the world. Prices in december 2020 have corrected to $1860 / Oz from a high of $2067 in August 2020, but are still more than 22% up YTD. 

"We think gold prices still have scope to increase by 20 to 25% in 2021-22 in a certain scenario. In this scenario, interest rates in the dollar and Euro zones continue to remain soft, trade frictions continue to simmer between the US and EU on one side and China on the other, geopolitical tensions and technological rivalry over semiconductors ratchets up a notch or two, Covid -19 cases continue to rise and the vaccine does not perform as well as expected for another 6-12 months, new stimuli get announced and bitcoin gets even more volatile," he added. 

Sahay added that one needs to acknowledge that future earnings are now more being subject to increased risks with the rise in leveraging. And more interestingly there is a hunt across the global markets for low hanging fruit, one such is Crypto currencies, its surge has been phenomenal. With the design of BTC meaning that only 21 million can exist and 18.5 million already having been mined, current trends suggest a further rise in BTC price. Since many institutions are now buying BTC as a part of their asset allocation, the question is what will be the allocation. The shift of liquidity to different asset classes (BTC amongst those)  has kept gold prices range bound recently. 

"However, as a new "normal" is yet to be established in the financial markets (what will be the "new" benchmark for PE ratios on the Dow, Footsie, Dax, NSE and HangSeng?; What will be the scale of money flows between markets of the $10 trillion fiat money  that has been released), there could be some systemic risks looming, which may provide support for higher prices for gold," he said

If on the other hand, if the above stated uncertainties mitigate and come down substantially, then one may see gold prices as being essentially flat for the next 6-12 months. The balance of risks (as for example, when asset allocation to BTC is done with reasonably soon, which we think will happen) suggests an upside at this point, Sahay said. '