The year 2016 started with a big promise for gold as it turned around its falling fortunes for three straight years and came up as investors’ top choice, but the rally all but fizzled out ahead of the new year. It has been the best-performing investment tool this year so far in a challenging economic environment amid elusive global growth outlook, outsmarting all other asset classes.
The last three years in particular had been tough for bullion investors worldwide. But the remarkable recovery this year soon tapered off, belying all expectations. The consolation is year-on-year return has turned positive, making it by far a successful one, beating even domestic equities.
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Gold and silver have yielded returns of 26 per cent and 45 per cent, respectively, since the start of this calendar year before backing down.The interest rate hike by the US Federal Reserve and prospects of a stronger dollar on a likely higher spending by President-elect Donald Trump put gold in a spot of bother.
The government’s demonetisation move — akin to ‘surgical strike’ against black money — led to a severe cash deficit. This, in turn, affected gold buying that saw demand collapse, reportedly down by about 40 per cent. The climb of standard gold (99.5 per cent purity) this year was quick from a steady start at around Rs 25,000 per 10 grams as against the last year-end level of Rs 24,980.
It hit a fresh multi-year high of Rs 31,570 in August before slipping back to Rs 27,585 as on December 27. Similarly, pure gold (99.9 per cent purity) took off, little changed, at Rs 25,150 against year-earlier close of Rs 25,130 and surged to scale a high of Rs 31,720 before retreating to Rs 27,735.
The silver (.999 fineness) prices have come off a high of Rs 48,730 per kg to trade at Rs 39,575 this year. At the start of 2016, it was modestly up at Rs 33,630 as against Rs 33,565 at the previous year-end. In effect, both precious metals lost their mojo to end almost where they started off after equities bounced back from their worst-ever start.
Globally, the start of the year saw a big jump in gold, with prices rallying a staggering 29 per cent from USD 1,060.20 to USD 1,372.60 an ounce in August, one of the strongest yearly openings for the metal in decades. The precious metal is trading at around a 10-month low against the US dollar. It stabilised at around USD 1,151 as on December 27 after falling to a low of USD 1,123 in mid-November.
The prices of silver skyrocketed by a whopping 50 per cent to hit a high of USD 20.70 an ounce before pulling back in early November to USD 15.70. It is trading at around USD 16.14. High local prices due to weakness in the rupee, which crashed to a historic low of 68.86 against the dollar in mid-November, came as a big dampener.