Will gold prices rise this Diwali?


After a stellar return in the previous year, gold prices have remained subdued as compared to equities. However, analysts are betting on the yellow metal considered to be safe haven during uncertain times.

According to Motilal Oswal Financial Services, gold prices are likely to rise in the next one year. It estimates prices to surge towards highs of 52000-53000 over the next 12 months. “We have been bullish and continue to maintain a positive bias for gold price over the next 12 months, and expect that the consolidation is stretched could see some directional move soon. The current scenario could have some short term hiccups which might give investors a better buying opportunity. We believe that gold has a potential to surge towards $2000 once again and might even make a new life time high,” it said.

The brokerage firm said that unlike Diwali 2020, this year there are fewer restrictions, shops are open, with the overall demand increasing, which can be seen from the import numbers which stand at 740 tonnes till September. Risky assets have seen massive upside and have delivered handsome returns in the last few months, and any change in trend or weakening if the momentum could lead to a massive surge in safe havens, particularly gold, it added.

Gold has performed in double digits for most of the past eight years. However, return of gold prices in 2021 has not been in favour of investors. In 2021, prices had hit a high of 51,875 and low of 43,320 levels. In 2019 and 2020, gold prices were up 52% and 25% respectively.

“We expect gold prices to move higher towards 54000 per 10 gm till next Diwali. Till next Diwali, we expect Gold prices to find support at 42,300 – 41,100 Levels. Trading consistently below 41100 levels would lead towards the strong support at 35,700 levels and then finally towards the major support at 29,500 levels,” said Angel One.

In the past few months, gold prices have been choppy due to volatility in US dollar and bond yields. For the first half of the year, better than expected economic data and hawkish outlook by the US Federal Reserve kept most market participants on the edge, while the second half has been witnessing weaker data set and change in Feds approach which could get the gold bulls excited once again, said analysts.

Rising inflation beyond comfort level of global central banks have also supported the overall safe haven appeal of gold. “This along with a host of other tailwinds like growing uncertainties regarding China’s Evergrande, power shortage issue, trade talks between the US-China, rising cases of covid-19 and Delta variant, growing debt and few others could keep the optimism of the gold bulls high. In the next Fed meets there are growing expectations of tapering of the massive bond purchase program which the Fed had initiated in order to safeguard the US economy from a hard landing during the Covid led economic crisis. Although the market is well prepared for the same, but some knee jerk reactions could likely to give the gold bulls another buying opportunity,” said Motilal Oswal Financial Services.

According to World Gold Council, retail demand for gold in India is bouncing back to pre- covid levels as mobility restrictions are gradually lifted across the country.

“With the upcoming festive and wedding season, there is all the more enthusiasm towards gold demand, and we anticipate it to be the busiest gold-buying season, since the start of covid. Demand for digital gold has also increased manifold, innovative tech initiatives, tie-ups with digital gold and UPI platforms by leading jewellers has brought about a substantial increase in volume of buyers and investors preferring online purchases,” said World Gold Council.

India’s gold demand was at 139.1 tonnes in July-September period, a 47% jump over 2020, reflecting a combination of low base effect and return of positive trade and consumer sentiments. While gold jewellery demand increased by 58% to 96.2 tonnes, investment demand for bars and coins also grew by 18%, in a quarter that tends to be seasonally subdued due to monsoons and inauspicious periods like Pitru-Paksha when buyers stay away. Softer gold prices have also generated significant consumer interest ahead of seasonal demand.

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