Traders and analysts are highly bullish on gold crossing the barrier of Rs.50,000 per 10 grams in the first quarter (April-June) of fiscal 2020-21. Silver too is expected to cross Rs 54,000 per kg, primarily due to scarcity of the white metal.
The yellow metal’s prices shot up after US Federal Reserve chief warned that a full recovery of the US economy could drag through 2021. The increasing tension between the US and China added to the chase for gold as a highly lucrative investment option during these grim times.
Printing of money by central banks has rekindled interest in gold, among the most stable investment options. The unprecedented scale of governments’ responses to the coronavirus crisis is adding to the gold rush. In an environment where bond yields are close to zero, real interest rates are consistently under zero, there is no opportunity cost of holding gold.
Silver has also shown signs of life after lagging gold for several months. For the first time, gold-to-silver ratio is hovering between 100 and 101. In the past few decades, hardly two times the ratio has touched or exceeded 100. The gold-to-silver price ratio had witnessed erosion in values, with the white metal showing some strength following improved demand on lower price and stock scarcity amid lockdowns globally.
The ratio, which indicates how much silver can be bought for one ounce of gold, had tested 124 levels in March this year following weakening silver demand because of an industrial and economic slump. The ratio was at record 79.2 in September last year. About half the demand for silver comes from the industrial segment.
Traders track the ratio to decide where to shift positions within the precious metal segment; many of them trade in the ratio. If they see ratio rising, they buy gold and sell silver in proportion. Gold and Silver are still good bets over the longer term as concerns of sustained global economic growth continue to linger. Gold ETFs, Sovereign Gold Bonds and Digital Gold are options for investment in gold. With rapid depreciation of Indian rupee against US dollar, gold remains a reliable hedge against inflation.