Gold, which has been a safe haven for traditional investors is proving to be the best bet in 2019 when compared to other investment avenues. It is beating returns derived from mutual funds, equities, real-estate and fixed deposits. On August 5, 2019, gold gained Rs 800 to hit a new all-time high of Rs 36,970 per ten grams. Whenever there is a sign of crisis in the economy, gold prices tend to show an appreciation, as gold is a financial instrument that does not lose its value even in a crisis. In times, when the global market scenario is bleak and slowdown has begun to take its toll on global growth, prices of gold are expected to rise even further in the coming year. Here are 5 key points that have led gold to shoot up in value.
Escalation in US-China Trade warImposition of fresh tariffs by US on $300 billion worth of Chinese imports was announced by president Trump on August 1, 2019. Following which, the People's Bank of China, took steps to limit the impact of Trump's new round of tariffs by letting its currency weaken beyond the psychologically important point of 7 renminbi to USD for the first time in over a decade.
Weaker Indian RupeeRecently, Indian Rupee witnessed its biggest single day decline in over six years; INR fell to 70.74 against the US dollar, as compared to its previous close of 69.60 per dollar. A weaker rupee also contributed to the rise in the yellow metal prices as the domestic currency's decline made imports costlier.
Weak economic outlookGlobal economic outlook is weak for the year 2019 as the world is expected to grow at 3.2 per cent in 2019 and 3.5 per cent in 2020 as per July's World Economic outlook report (WEO). Since April WEO projections, both these numbers have been revised downward by 0.1 per cent. Credit rating agency CRISIL has lowered gross domestic product (GDP) growth forecast for India by 20 basis points to 6.9 per cent for this fiscal, citing weak monsoon and slowing global growth. Sluggish GDP data for the first quarter was also taken into account for lowering India's growth estimates. The development came days after the International Monetary Fund (IMF) cut India's growth by 30 basis points for the calendar years 2019 and 2020 to 7 per cent and 7.2 per cent, respectively, due to weaker-than expected outlook for domestic demand.
Foreign investors turn net sellersForeign investors turned net sellers in the month of July 2019, pulling out close to Rs 11,000 crore from the Indian equity market. The higher tax imposed on the super rich in budget 2019-20 was a strong contributor leading to FIIs' selling spree.
Downbeat Asian marketsAsian markets have not performed as per expectations of investors. The major exchanges bled across Asia as investors looked for safer investment avenues. Asian markets fell, BSE and NSE also tumbled. Asian markets fell following Wall Street's reaction to rising trade tensions between the US and China. On August 5, Wall Street lost 767 points or 2.92 per cent, which is the sharpest fall in 2019. Given the uncertainty in equity markets, investor appetite for risky assets remained shaky and focus shifted to safe-havens like gold instead of the stock market.