Will Gold Regain Its Glitter?

All that glitters is not gold! Pegged back by a roaring dollar at multi-year highs, jitters over US monetary tightening and a global commodity rout, the yellow metal seems to have lost some of its luster, with the bullion extending its bearish ride into 2015.

Gold has shed over 1 per cent in the domestic market in 2015 as a stronger dollar bites demand for the bullion as an alternative asset by costing more to those holding other currencies. To add to the woes, the tremors of the oil price rout have also taken toll on Gold as investors fret over slowing global inflation, denting gold’s appeal as a hedge against rising prices.

However, the cloudy days for Gold may be over with the precious metal set to regain some of its sheen as an influx of global liquidity amid record QE injections from central banks in Europe and Japan and further easing from China bolster the bullion, a hedge against the inflationary risk of monetary stimulus. China has cut interest rates thrice in the past six months, with the latest reduction of 25 bps coming last Sunday, as policymakers look to stave off a worsening slowdown.

Moreover, doubts hover over the timing of a maiden US rate lift-off since 2006 with tepid Q1 growth and labour market slack prompting many analysts to pare back expectations of monetary tightening in the near-term, adding to the sheen of Gold, which tends to flourish in ultra loose monetary policy regimes.

Further, the greenback has also retreated from 12-year highs while oil prices are on their way up. Gold will also find comfort from safe haven demand as Greece stares at a potential default that could shake-up global financial markets, while the worsening situation in the Middle East, uncertainty over Iran-West nuclear pact, Russia-Ukraine tiff, will offer support to prices.

Another import element in the Gold story will be demand from India, the world’s biggest gold consumer. Shrugging off rupee depreciation and import curbs, the love affair between India and the precious metal remains strong as ever. Bullion imports soared to 125 tonnes in March from 60 tonnes in the year ago month.

Our verdict:  Bullion will Rise and Shine again amidst uncertainty over the global economic recovery and record cash injections from central banks.