Gold- backed ETFs have seen major outflows in Nov 20., the first outflow in the last one year. This is also the second largest outflow ever since ETFs came into existence. Gold ETF holdings came down by 107 tons or US$ 6.80 billion, equivalent to about 3% of the assets under management. This movement happened at the same time as the fall in gold prices to the tune of 6.50% in Nov. 20. The decline in assets was witnessed across Europe, the US and Asia.
“The likely support levels for gold are at 1860, 1810 and 1750, in case of a price decline. In case of an uptick the potential is very much close to 1960/70”. (Navigator , Nov, 2020). So, the test of the lower levels is done already and it may likely try to bounce back to 1780 and 1810 levels. Below the current market levels support is available only at 1480 and 1430 levels, which is where the rally to US$ 2000 had started.
In our earlier write ups we had indicated that momentum in gold prices would be subject to certain conditions. In the Navigator, November Issue, we had mentioned that – “ While gold looks well supported under the current circumstances there are certain factors that may have disproportionately large influence on prices. Currently the major factor that has triggered the rise in gold prices is the pandemic and the uncertainty in global economic growth. The fall in interest rates and the bond yields in major markets staying in the negative zone, non-availability of safe and lucrative alternate avenues for funds deployment are some of the factors that have resulted in gold strength. Therefore, one needs to bear in mind the fact that events like a major reduction in the fresh infections, the availability of an effective vaccine, rise in inflation and resultant rise in interest rates, and a revival of global growth may contain the advance of gold beyond the levels seen so far. In other words, so long as the cloud of uncertainties envelop the global economies, gold may remain well supported.”
The above view on gold remains unchanged, and we suggest that any exposure to gold may be only to the tune of 5 % of the portfolio mandated by standard asset allocation models.
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