BY RITURAJ BARUAH
Mumbai, Aug 12 (IANS) The coronavirus pandemic has changed the world in not just one aspect or two. In the world of investments and markets, it has also made an unprecedented trend occur in two investment portfolios — gold and equities.
The two asset classes, which usually trade in diametrically opposite directions, have in the past few months been on the same path — northwards.
In an ideal situation, during uncertain times such as the ongoing pandemic, investors flocking towards gold is normal, but that would also mean that they are leaving other assets classes, mostly equities.
In fact, what we have witnessed in the past three months is that both the asset classes have been moving in tandem, with precious metals, both gold and silver, hitting record highs every other day and the equities coming out of the bear run that hit in the initial phase of the pandemic.
The BSE Sensex has gained around 20 per cent in the past three months, despite the continuing economic uncertainty and no significant picking up of economic activities.
Speaking to IANS, Navneet Damani, VP, Commodities Research, Motilal Oswal Financial Services, noted that it is a “grave contradiction” that has been underway for the last few months. He was of the view that liquidity from central banks across the globe is pushing everything higher from risky to non-risky assets.
“Equity markets are driven largely because of the liquidity push from central banks all over the world. They have also brought their interest rates to multi-year lows or multi-decade lows,” Damani said.
As equities have been driving across the globe, Indian equities are also participating in the rally, he told IANS.
Noting that nobody is willing to park money in non-yielding assets at this point in time, he said that people are scouting for fresh returns, where gold is playing a major role. Gold has got the benefit of being a safe haven asset amid the uncertain times.
Gold futures on the Multi-Commodity Exchange last week surged above the Rs 55,000 per 10 gram mark. Similarly, silver jumped to over Rs 74,000 per kg mark, again an unprecedented level.
The rise in silver prices both in domestic and international markets has been largely due to supply concerns along with the industrial and investment demand. Peru, the world’s second-largest silver producer, saw its mine supply fall by one third due to the Covid-induced lockdowns.
Anuj Gupta, DVP for Commodities and Currency Research at Angel Broking, said India’s silver imports from Hong Kong have been largely impacted this year amid the protests in Hong Kong.
“Geopolitical reasons are major factors for the recent surge in gold and silver vis-a-vis India-China and US-China tensions. Silver comes from Honk Kong, and the protests there have severely delayed supplies.
Noting that generally when gold goes higher, there is fall in equities, he said: “People usually hedge equities through gold, which we saw till May. After the economic package was announced, the economy has got some support,” he said.
Another major reason for the boost in equities was the FDI flow that came in with the investment in Jio platforms of Reliance Industries.
“Reliance Industries also has a big role to play as it has sold a lot of stake (in Jio). That has brought dollars into India and led to the Indian foreign exchange reserves of the country reaching record levels,” Gupta told IANS.
Damani of Motilal Oswal was of the view that the rise in equities is likely to continue even when the much anticipated $1 trillion stimulus in the US is yet to be agreed upon.
So, even in uncertain times, the liquidity push by central banks and large investments coming into companies have led to a revival in the equity market. a similar trend is prevalent in the bullion market also. It is an unprecedented development, seen only in 2020.
(Rituraj Baruah can be contacted at firstname.lastname@example.org)