March gold imports rise by 470 per cent because of import duty relaxation by the government
According to a study by Motilal Oswal Financial Services, the price of gold is expected to rise above Rs 56,500 (per 10 gm) in the next 12-15 months. It said that "On the domestic front, the post-budget price correction is a good level to enter an immediate target towards Rs 50,000 and eventually hitting new highs of Rs 56,500 and above over the next 12-15 months,".
According to the survey, gold's volatility in 2021 has been comparable to that of any amusement park coaster, with the sector experiencing some profit booking and consolidation at lower levels amid US Presidential election uncertainty, vaccine reports from various pharma firms, and dollar and yield volatility. This resulted in some profit booking in ETFs and CFTC positions, implying that speculators had also exited their positions, impacting overall sentiment. But the precious metals pack was supported by solid fundamentals, which kept bulls' hopes high.
"While we talk about the pandemic and bullions fundamentals, it is hard to forget the supply and demand dynamics that have been changing due to the measures the government announced in these times. The year 2020 started with prices at peak as there was ample demand and not sufficient supply," the report said. The physical market was harmed because stores were closed due to the pandemic, and participants were unable to purchase or recycle their gold. However, with fewer gold recycling and mines suffering losses, the total supply was in jeopardy. In terms of demand and supply figures in the first quarter, the World Gold Council claims that stronger consumer demand offset the impact of ETF outflows as global economies recovered. And total supply fell 4 per cent in the first quarter even though there was increased mine production.
In 2021, the pandemic struck again and a lot of economies announced stricter restrictions that led to safe-haven buying in the precious metal pack. Covid cases are still on the rise in India and the pandemic fears still hover the market, but the situation is a bit different from last year. A complete lockdown is not yet announced pan India. While there are a few restrictions, the demand-supply dynamics are different from the previous year. Also, import duty cut was declared earlier this year in the Union Budget announced by the Centre, which also weighed on the prices and encouraged jewelers to import more. The effect of the same can already be seen as the March import numbers were reported at 160T which is almost 470 per cent higher than the previous year. Strong fundamentals are helping gold gain momentum and are justifying our bullish stance maintained for more than a year, the Motilal Oswal report said.
This week marks the beginning of Akshaya Tritiya, a Hindu and Jains' annual spring festival. The demand for gold rises during such occasions, and based on the import numbers, the same is expected this time as well. Although the lockdown situation is better than last time, there is definitely a concern about restrictions being re-imposed in almost all parts of the country. In addition, there are many platforms for physical gold, such as online gold (Me-gold), ETFs, and others, from which market participants can choose based on their risk tolerance.
"Gold prices tend to increase during this festival; there are only fewer cases where the prices have consolidated or traded sideways. Going with the historical trend, and the current fundamental and technical setup, the prices could maintain the upside momentum," the report said. It further added that "Prices have consolidated over the last few months and recently caught up some momentum and returned to around $1,800 on the COMEX where we are comfortable suggesting buying for a short to medium perspective targeting new lifetime highs towards $2,050 followed by $2,200,".