Gold has a lot to offer this festival of wealth and prosperity

After months of gains, the gold price has turned rangebound lately as market players await more clarity on major issues like US-China trade and Brexit.

Gold has a great significance in Indian society and while there is no "right" time to invest in gold, some days are considered more auspicious than others to buy the metal. One such day is Dhanteras, which falls on October 25, this year.

The first day of the five-day-long Diwali festival, Dhanteras - the puja of wealth - is celebrated on the 13th day of the month of Ashwin, as per the Hindu lunar calendar. It is customary to purchase gold and other precious things on this day as it is understood to bring prosperity.

If we see gold's performance from last Dhanteras, price in the Indian market has risen by more than 19 percent while the international price has slightly outperformed with a gain of nearly 21 percent. Gold has given a good return in the past year but what needs to be assessed is whether this will continue or not.

Gold is traditionally considered a safe haven asset that benefits during times of economic and political uncertainty. Gold has gained in the last few months as we have seen a shift from riskier assets amid increased challenges to major global economies.

The US-China trade war, monetary easing by major central banks, exchange-traded fund (ETF) inflows and central bank purchases and global economic slowdown helped gold hit a six-year high in early 2019.

Domestic gold price surged to record high level amid firmer international price, weaker Indian Rupee and hike in customs duty.

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After months of gains, the price has now turned rangebound as market players await more clarity on major issues such as the US-China trade and Brexit. So, while we see a pause in gold’s bull run, there is more in store for the metal.

On the trade front, the US and China are working to resolve their issues as tariffs have begun to hurt their economies, however, a comprehensive deal is unlikely in the near term because of the wide differences between the two. US-China tensions over Hong Kong has added to uncertainty about the deal.

On the Brexit front, UK Prime Minister Boris Johnson has reworked terms with the European Union but is yet to get it approved by the UK Parliament. With the October 31 deadline closing in, the most likely outcome is a possible extension, which could be as long as three months. Brexit concerns may thus continue to weigh on the UK and European economies.

The gold rally also halted as market players questioned the feasibility of central banks in supporting the economy. The Fed has already cut interest rates twice but is hesitant on starting a monetary easing cycle.

The European Central Bank already announced indefinite bond purchases and now has little additional tools left. While central banks are running out of tools, they are unlikely to change their loose monetary policy stance unless the economy is on a solid footing.

On the whole, the global economy faces numerous challenges and unless these are resolved market players may continue to seek refuge in gold and other safe-haven assets.

Source by- Moneycontrol 

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