Gold price forecast may drive ETF, reported record inflows in August

NEW DELHI: Analyst reports predict gold prices will continue to rise with Citigroup predicting it may rise by 25 per cent to hit $ 2000 an ounce in one to two years.

This may well feed into a frenzy of Gold ETF buying reported by AMFI in its figures for the month gone by.

Gold ETFs reported a net inflow of Rs 145.29 crore last month, the highest inflow into gold-backed funds since December 2012, according to the Association of Mutual Funds in India (AMFI).

Gold prices may rally to a record above $2,000 an ounce in the next two years, according to Citigroup Inc..

“We expect spot gold prices to trade stronger for longer, possibly breaching $2,000 an ounce and posting new cyclical highs at some point in the next year or two,” the Citigroup said in a note. Gold sold for Rs 39,530 for 10 grams yesterday in India. In the US it ruled at $ 1494.99 an ounce.

“For now, the U.S. consumer and potential growth story is holding up,” Citi said in its note.

However, “we remain more concerned about market signals — three-month to 10-year yield curve inversion — and leading indicators that are weakening at the fastest pace since the Great Recession.”

“We are witnessing a trend where investors are rushing to buy gold as fears of a worldwide recession take hold. People are reading the news on the slowdown in India and China as well as watching the volatility in the stock markets and are moving into their safe haven of gold,” said Vikram Sahney, a commodity trader. “However on the commodity market at least with gold touching Rs 40,000 for 10 grams in August, people are moving towards platinum and silver,” he added.

Nevertheless, the rush to buy gold ETFs may continue though at a slower pace, predicted Amit Banerjee, an independent merchant banker specializing in East Asian Funds.

BNP Paribas has already raised its gold-price forecast amid expectations that the Federal Reserve will cut US interest rates four times by mid-2020.

“Negative interest rates being offered in western countries are upsetting financial modeling. People can now actually be paid to take a loan with negative interest rates ruling in some countries. This implies that there could be currency depreciation in many places. All this means investors will keep looking at safe havens like gold,” said Banerjee.

Goldman Sachs has however predicted a more modest rise in gold prices, stating it could rise to $1,600 per ounce.

“If growth worries persist, possibly due to a trade war escalation, gold could go even higher, driven by a larger ETF gold allocation from portfolio managers who still continue to under-own gold,” Goldman analysts said in a note last month.

“Gold ETFs have recently built momentum almost as strong as in 2016, and we believe that can be maintained in the short-term.”