Gold is set to score the best gains in a decade this year as the pandemic and a gloomy outlook for the world economy sparked a rush towards the yellow metal, considered a safe haven in turbulent times.
Volatility in other asset classes and a risk-off sentiment also attracted investors to gold.
Gold outperformed equities with a 24% gain year-to-date, despite the benchmark Sensex surging more than 80% after the coronavirus-induced crash in March. Gold prices jumped 18% last year, rebounding from a 1.56% drop in 2018.
“Gold was already on an upward trajectory before covid, with the pandemic being only one of the tailwinds for its incredible rally. And most macroeconomic conditions that supported gold are now being carried forward to 2021,” said Chirag Mehta, senior fund manager-alternative investments, Quantum AMC.
Gold prices hit a record high at $2,075.47 per ounce in international markets and ₹56,018 per 10 gram in the domestic market on 7 August as investors bought gold and sold risky assets such as stocks. Even before the pandemic, geopolitical issues such as the US-China trade war, low-interest rates and ultra-loose monetary policy had begun to gradually lift gold prices.
Mehta expects gold prices to rise initially on the back of additional fiscal stimulus from the US government and improving investment demand as well as consumer demand from India and China.
In contrast, equity benchmarks have not only recovered from the more than 20% slump in March but also hit record highs multiple times in 2020. However, both the BSE Sensex and Nifty 50 will close the year with 13% gains, similar to the 12-14% rise seen in 2019.
What stands out is the performance of smaller stocks in 2020. BSE Midcap and BSE Smallcap indices not only outperformed benchmarks but also saw one of the best years since 2017. Year to date, BSE Midcap jumped 18% after declines of 3% and 13% in 2019 and 2018, respectively. Similarly, BSE Smallcap Index rose 29% so far this year, while it fell 6% and 23% in 2019 and 2018, respectively. In 2017, both BSE Midcap and BSE Smallcap indexes were up 48% and 60%, respectively.
Sectorally, BSE IT and Healthcare indices outpaced peers while for banks, it was the worst in four years. In 2020, the BSE IT index rose 55%, BSE Healthcare gained 60%, while BSE Bankex slipped 5%. Last year, BSE IT and BSE Bankex indexes gained 9.8% and 21%, respectively, while BSE Healthcare shed 3.5%.
Analysts at DSP Investment Managers said the speed at which efficient firms turned around was a positive surprise. “IT firms smoothly transitioned to work-for-home without affecting delivery. Healthcare firms ensured adequate availability of medicines despite supply chain bottlenecks. Consumer firms quickly scaled up health and hygiene portfolios to meet rising demand,” it said.
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