Gold prices may hit $1,920-mark in one month; vaccination drive, dollar movement key

Gold prices may hit $1,920-mark in one month; vaccination drive, dollar movement key

The year gone by (2020) will be etched in human minds for a very long time as mankind has never faced a situation wherein the global world was in a lockdown mode due to the havoc created by Covid-19 pandemic.

The United States, which accounts for just 4 per cent of the global population, had 20 percent of all corona deaths was at the core focus as the country was hit by a second wave of the virus, resulting in much more deaths than the first wave.

This was followed by the elections in the US, which culminated into the appointment of new President Joe Biden at a time wherein the outgoing President Trump was about to be impeached for the second time in his term of 4 years although Trump survived the first impeachment. Moreover, Trump’s possibility to order a strike on Iran’s main nuclear facility Natanz on the grounds that it is being used to enrich uranium was also under consideration. In totality, the US has now become the world’s new epicentre of political and geo-political instability in the months and years ahead.


Dollar weakness: A major boost to gold and vice-a versa

Dollar, which is also considered to be a safe haven, has already lost its value by 6 per cent in 2020, and effects of the massive monetary easing in the US are expected to combine with a post pandemic reversal of last year’s financial flight into safe US assets, which will likely weaken the greenback further in 2021. Dollar weakness and gold prices are inversely correlated and if it weakens further, there is more room for gold prices to move higher in the months ahead.

On the contrary, the dollar has gained its value in January by 1.4 per cent on account of mass inoculation programmes in the US, the UK, India, which led to the fall in gold prices by around 3 per cent in January 2021, in the international as well as domestic markets.

Easy money policy: The game is on

The next round of fiscal stimulus in the United States was now in focus with President Joe Biden’s $1.9 trillion stimulus package proposal. Euro zone finance ministers also pledged continued fiscal support for their economies. While the global equities have been doing well, the underlying economy still remains weak because of which the central bank is trying to do whatever it can to bring in normalcy back into the economy, which is visible in the easy monetary policy adopted by the US and Europe and major central banks across the global economy.

What next? Where is gold headed

The current risk assessments are more tilted in favour of risky assets rather than the safe haven assets and the vaccination programmes are creating a ray of hope across the global economy.

However, more stimulus measures from the US and the $1.9 trillion package that might sooner be released by the US will result in further action in gold prices moving higher.

Whatever may be the circumstances, the broader fundamentals of easy money policy, weak dollar, rising infections will continue to be the push factors for gold prices to turn bright again.

From a one-month perspective, we expect spot gold prices in the international markets to move higher towards the $1,920-mark and the MCX futures might move higher towards the Rs.50,400/10 gms-mark in the same time frame.

(Prathamesh Mallya is AVP Research Non Agri Commodities and Currencies, Angel Broking Ltd. Views are his own.)

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