Gold Prices are expected to go up in 2021 – Should you invest?

Gold Prices are expected to go up in 2021 - Should you investGold Prices are expected to go up in 2021 – Should you invest?


Gold prices have been on the rise in the last 2 years. In the last 5 years, gold prices have increased by almost 100%. There are several factors that are showing up a signs that gold prices are expected to go up in 2021. In such a case, should you invest in a gold now? Which are the best gold investment options available now?

Also Read: Latest Post Office Interest Rates – Jan-21 to March-2021

A quick check on history of Gold Prices

Here is the history of gold prices in the last 20 years per 10 grams. One should note that average prices may vary by city.

2000 – Rs 4,400

2005 – Rs 7,000

2010 – Rs 18,500

2015 – Rs 26,343

2020 end – Rs 51,500

Why Gold Prices are expected to rise in 2021 in India?

Here are some reasons why gold prices are expected to increase in 2021 in India.

#1 – Covid-19 and New Strain (2.0)

While we all might be happy about the vaccine being made available shortly, new strain is again putting pressure. It was observed in the past that pandemics have created uncertainty that would push gold prices.

#2 – interest rates

Due to covid-19, we could see Govt of India not touching the interest rates. However, in coming quarters, once the economy is back to stability post covid situation, interest rates are expected to fall. Such fall in interest rates, would push gold prices upwards.

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#3 – US – China relations – No major changes expected from current

There is no need to explain the reasons in details about this. This is another major cause of concern which would push gold prices upwards.

#4 – Countries are accumulating gold

Generally, countries would keep buying and selling gold reserves. However, in the recent times, many countries are holding their reserves. Some countries even increasing their gold reserves due to this pandemic. This is another reason gold prices can go up.

#5 – Lower supply of gold due to Codiv-19 pandemic

Due to covid-19, supply of gold has reduced in the last 6-9 months. While the situation would improve in coming months, this also might put further pressure and gold prices rising.

#6 – Fall of US 10 year bond yield

This is another important factor that has driven gold prices in 2020. Generally, when bond yield increases, there is less attraction towards gold as gold by itself would not generate any income. Due to fall in US 10 year bond yield, funds are flowing towards investments into gold.

#7 – Weak Rupee

This is another common phenomenon seen in gold prices rising. If rupee is weak against dollar, gold prices seen rising. We are currently seeing that the rupee is trading at 73 per dollar. The dollar was available at Rs 70 at about a year back. Strong dollar is putting pressure to gold prices to rise.

#8 – Pumping cash to boost economy

Several countries are planning in various ways to come out of this covid-19 loss. Countries are printing trillions of dollars and pumping money to boost their economy. This would rise, inflation. We all know that inflation and gold are best friends. Such pumping of money would push gold prices further up.

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Also Read: Top 15 Mutual Funds to invest in 2021

Should you invest in Gold in 2021?

All these factors indicate that gold prices are expected to increase in 2021. Like I indicated in our earlier articles, investment in gold should be done based on your need. If you still want to diversify and make gold as part of your investment portfolio, you can invest 5% to 10% in gold. You can consider investing in sovereign gold bonds, gold funds and gold ETFs. Don’t buy physical gold as investment unless you need it in future.

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Suresh KP

13 comments

  • Neelam

    Can you tell the difference in Gold ETF, Fund & SGB in terms of returns, security of invested money etc.

    And which one is best out of the 3.

  • S Bhattacharya

    Great Article, true eye opener from gold perspective.

    Will you give an article on Real Estate Investment in current scenario as well?

    Regards,
    Soumya

  • Kamal Garg

    Your point No. 2 that “Due to covid-19, we could see Govt of India not touching the interest rates. However, in coming quarters, once the economy is back to stability post covid situation, interest rates are expected to fall. Such fall in interest rates, would push gold prices upwards.”. You are requested to kindly enlighten on your philosophy that “interest rates are expected to fall”. In general view, once the covid story is gone and economy starts looking up, interest rates are going to harden from here as RBI would want to roll back the easy liquidity/money policy in the economy as easy liquidity leads to speculative buying in all asset classes including stock market, real estate and what not as is happening right now.
    In fact your Point No. 7, “weak rupee” would not let the interest rates at such low levels any time in future. If rupee has to strengthen, interest rates in the economy has to inch up. Look at USD, what is happening. USD has been depreciating against all major currencies including INR largely because of excess liquidity and easy money policy of the FED in US. In fact US Dollar Index has depreciated from a level of around 98-99 to a level of 89.
    Request your detailed feedback on this.

    • Kamali ji,
      I have already expressed my views in detail. Let me provide clarifications to couple of points you have highlighted

      Point no.2 when i said post covid scenario, interest rates expected to “reduce”. Such reduction/fall can push the gold prices up as investors would hunt for better option than fixed income

      point no.7, Yes, US is pumping more money, but rupee is still weak. See how the rupee to dollar conversion moving. If USD is weak, rupee should strengthen which is not the case. This is altogether a different point

    • Mani Sriram

      Agree with you. With inflation crossing 6% and economy picking up, there is no scope for interest rate going down anytime. Max one can expect is rates would be forcibly kept unchanged at current levels to maintain the cost of borrowing for the businesses. USD is different scenario. If the ongoing China – US trade tussle continues under Biden and Chinese still facing capital issues with their banks folding up faster rate, China might dump some of those treasury bonds they are holding which will impact the USD

  • Nisha.therasa

    I just started a SIP in axis gold mf.
    Can u write an article on good investment options

  • Vivek

    Hi Suresh,
    Thanks for sharing insight about investment in Gold.
    Pls suggest in your next blog, about good gold funds abs good ETF for gold investment.

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