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By - Neelam Motwani

Gold Price in Corona Crisis: How and Why Gold Market Changed During Pandemic?

In the middle of global crisis sparked by COVID-19 pandemic, the significant trade in bulls and bears zone was also witnessed by heavy metals. Gold, in precise, saw a similar trend of 2008 financial crisis. During that time, funds positioned with gold saw a huge nosedive where investors were forced to sell their precious metals and raise cash to buy treasuries in United States.

However, the trend also saw some significant ups during COVID-19 pandemic. It was a fine day of 11 March 2020, when WHO announced COVID-19 as a global pandemic seeing the tension rising not in just the increasing numbers of cases, but impact of same on the global economy. Let's analyse the Coronavirus impact on gold price.

Gold: Dips and Falls

Gold is considered as a safe-haven asset across the globe. But eventually the trades were nosediving as COVID-19 pandemic hit the economy. Through mid of February 2020, gold still showed signs of slow burn in the bulls’ market. Essentially, that happened because of two major factors: 

  • Global Uncertainty: The safe-haven asset trade was linked to the shutdown of China followed by tensions rising in the US-China trade war and weak peaks seen in Eurozone. 
  • Government Bonds: The trades were majorly affected by low to negative yields that were witnessed on high-quality government bonds. The gold prices saw a hike in when funds were to be paid to the government and the cost of hold the same was trading at a historical low. 

How did The Market Change?

After the official announced of COVID-19 global pandemic, it was clear that economy of United States would take a serious hit. To top the crisis, gold prices took a huge sharp escalation on 12 March reaching the seven-year high price of USD 1684.

 

 

In no time, future marker was overwhelmed by selling trades when retail buyers started inflowing in the Gold Exchange traded funds. However, from in the last two weeks on March, gold prices saw a rebound dip where the trades dropped to bearish market up to USD1460, lowest of the year 2020. In no time, the gold prices are moving into the upward direction reaching USD 1752 on 7 April 2020.  

However in India, the gold price maintained its peak and saw a hike in April 2020, when the gold price escalated to USD1683.2 per troy ounce.

 

 

Even during the COVID-19 crises, it seems that gold market will sentiment to the positive direction even after the lowest drop in Mid of March 2020. Talking about the total holdings of Gold in the year 2020, it stood at 3,165,5 tonnes in March, which is the highest amount in the history. Highlighting the retail side of the coin, sellers are reporting demand for coins and bars, but might have to wait for a little time as many lines are out of stock due to global lockdown amid COVID-19 pandemic.

Balance Between Demand and Supply of Gold

The fact states that the trading price of any commodity completely rely on the demand and supply of that particular asset. Highlighting supply of gold, the refineries in the world has announced a shortfall amid nationwide lockdown.

Quoting gold price in corona crisis, the deficit was reported by the major gold refineries Valcambi SA, Argor-Heraeus SA and PAMP SA located in Singapore as the country is still battling increasing number of cases. However, the hopes have been singled in recent days to partially re-open the refineries to help investors with physical quantity of the yellow metal. Till then, the demand is rising amid shortfall in supply resulting into upward trend of the trade prices.

 

 

Despite the recent fall in second week of March 2020, Yellow metal has recovered from the nosedive while following the upward trajectory. However, the upward movement also witnessed a negative side on the markets like UAE and India where buyers reduced their capacity due to Coronavirus lockdown.

Are People Buying Gold Amid COVID-19 Pandemic?

To conclude this question, it is vital to undertake the recent events and gold price trades from different countries. Let’s consider two major countries that are known to be biggest buyers of the yellow metal

  • United Arab Emirates

UAE is known for the trajectory to attract visitors on the quality and price of gold in the country. As on today, 10 July 2020, the price of 24K gold reached AED218.25 per gram, according to Dubai City of Gold. 22K gold, on the other hand, was seen fluctuating at AED205. Buyers in UAE will have to pay VAT amount of AED 10.98 and 10.31 to purchase 24k and 22 K gold respectively.

Read More: 5 Tips for Buying Gold in Dubai Souk

In the UAE market, it is anticipated that the gold price will continue to escalate until the COVID-19 vaccine is announced. As of now ‘Gold price corona effect’ is quite trending considering that the market volatility is dependent on the rising cases of COVID-19. The estimated gold prices might even cross USD2,000 per troy ounce with increasing cases globally. However, the price correction of around USD100 to USD150 is anticipated, once the vaccine is introduced.

  • India

In India, Gold is considered to be a perfect hedge against inflation. As on today, 10 July 2020, the gold price of 24K and 22 K is trading at INR4841 and INR4741 per gram. While the retail buyers are little hesitant to invest in gold right now, the market price of gold is still following the escalation road.

India also participated in the vaccine race and hoping to introduce the same by August, the gold prices in India might follow a rebound trajectory soon. Till then, the retail buyers have a pushed a break on their buying capacity.

  • Worldwide

Since the demand is on high pace and supply is slower than expected, the gold price is maintaining the trade in green zone. According to Statista, the estimated average gold price in worldwide is expected to dip by 2021 to USD1452 per troy ounce.

 

 

While globally, the refineries are facing a major issue to re-open the same, the demand is increasing gradually. However, many countries are lifting nationwide lockdown, and mining sites will open with 50% capacity. When the supply will see a gradual escalation, the gold prices might witness a rebound when retail buyers will knock to the gold purchase again.

To Conclude

As quoted before, Gold is considered as a safe-haven asset whose demand showcase a steady pace movement. While people are still fighting the battle against COVID-19 right now, the price of yellow metal will catch the gradual momentum soon. Meanwhile, investors are hoping for economic recovery soon, where gold will shine its demand at rebound prices.