After witnessing a steep fall in the price of gold in the global markets, the World Gold Council on Thursday said gold still remains one of the best performing asset classes this year and could still deliver positive returns even if interest rates start trending higher in the US.
“When real rates are negative, gold returns tend to be twice as high as the long-term average. Even if real rates are positive, as long as they are not significantly high (4 per cent in our analysis), average gold returns remain positive. Falling rates are generally linked to higher gold prices; yet rising rates aren’t always linked to lower prices,” WGC said.
According to it, consumers and investors may see the price decline as a good buying opportunity as many have been waiting for a price pull back before entering the market. When gold prices corrected by around 7 per cent in Q3 2015, there was a sharp increase in demand for jewellery, bars and coins.
WGC noted that the price correction also came at a good time for Indian consumers.
With a good monsoon, the upcoming wedding season and Diwali and Dhanteras festivals, demand could pick up after subdued activity year-to-date. “Volumes in the physically gold-backed ETF picked up in the secondary market as the price fell, and they haven’t resulted in large redemptions so far. We believe this is an indication that there is still good appetite for gold amongst the investment community,” it said.
Central banks, the major drivers of gold demand, continue to be strong buyers of the metal to diversify their reserve asset holdings considering the shrinking universe of non-negative yielding assets. Gold still the best asset, claims WGC.
