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Glittering Gold: A Safe-Haven Investment

The value of gold has rocketed by more than Rs 25,000 per tola since the beginning of the year 2020. Regardless of the pandemic, the question arises: Why is the price of gold still glittering, even if the demand in the market seems to be low? Who are the buyers?

By Somya Agrawal, KATHMANDU: Gold is said to be one of the highly liquid assets and is the first priority of the investors in the times of economic slowdown, financial uncertainty, and of course ongoing pandemic, COVID-19. To minimize or diversify risks of financial markets, especially in times of uncertainties, investors opt for the safest investment, i.e., on bullion. It is less volatile compared to other financial instruments traded in the market.

The yellow metal is creating a new record every next day in the International market and certainly in the Nepalese market. At the start of this month, i.e., July 1 the price of gold was marked at NRs 91,700 per tola, while by the end of this month the price of gold was marked at NRs 99,300 per tola. The rise in the price of gold seems to be very high, with the increase of NRs 7,600 per tola in just the span of 30 days.

Women buying gold in Kathmandu, Nepal.

The Federation of Nepal Gold and Silver Dealers’ Association (FeNeGoSiDA) in Nepal has been formed with the objective of resolving the problems that arise in the sale and purchase of precious metals, gold, and silver in the Nepalese market. It is noted by the Federation that, the price of precious metals in Nepal is determined based on international price, along with the addition of freight cost and taxes. The gold price has reached to 1,979.60 US Dollars per ounce on July 31.

According to analysts, the price of gold is basically moved by a combination of factors worldwide. May it be demand, supply, economic conditions, or investor’s behavior. Likewise, as per the current scenario, where the economy has slowed down majorly due to ongoing pandemic, COVID-19, a question arises: Why is the price of gold still glittering? Who are the buyers?

With this, let’s get insights into some of the possible reasons for the continuously rising price of the yellow metal.

1. Gold as a safe haven

Investing in gold is considered one of the safest investments as the investors get the fixed amount of returns, with very little fluctuation in its prices compared to that of the financial market and other financial instruments. Whenever the stock market, real estate and other investing options show downfall, investors pull up their funds in gold.

At this period, the COVID-19 pandemic has aided gold to create new records in the market, by accompanying travel restrictions, less economic activities, and shut down of businesses.

2. Low rate of interest

A low rate of interest in saving accounts and fixed deposits of banks and financial institutes have somehow motivated the investors to trade on gold rather than getting their money deposited in banks and financial institutions for earning through interest.

3. Demand and supply:

Similar to other commodities, the price of gold also works on the demand and supply theory. More the demand of gold in the market has a tendency to pull the price upwards in the market. However, as per the current scenario, the pandemic has minimized the purchasing power of the market, which has created less demand for gold in the market. Then why is the price still on the rise?

Investors are looking into bullion (a reliable asset) for investing to secure their funds, which is somehow increasing its demand in the global market. This can be one of the possible factors in the time of crisis.

4. Economic Uncertainty:

Over a few months, some economic uncertainties have highly caused in the fluctuation of the price of precious metals. Continuous rise in a number of coronavirus cases and tension between the world’s two largest economies i.e., US-China relations has created a great impact on the rise in gold prices around the world. Followed by slow economic growth, which tends the investors to shift towards safe and reliable investments like in gold.

Moreover, this trend of continuous rise in the price of gold has created a historical record worldwide. The future seems to be uncertain, hence cannot be predicted. All in all, we can conclude that a bullish trend in the market is due to economic uncertainties, fluctuations in the financial market, and investor’s shift to safe investment.

Published Date: Saturday, August 1st, 2020 | 11:25 AM

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