Gold Shines on Fresh Geopolitical Concerns

After providing superlative returns in 2019, there appears more gains are still to come for investors against the backdrop of fresh hostilities in the Middle East.

The year 2020 has just saw couple of days trading sessions and the yellow metal quotes near record levels.

What causing the rush among investors is killing of two senior military officials by the US Marines on Thursday.

As per the media reports the US army personnel have carried out strike near Baghdad international airport that killed Qassem Soleimani, the Iranian general who led the Revolutionary Guards’ Quds force and and Abu Mahdi al-Muhandis, the deputy head of the Iran-backed Iraqi Popular Mobilization Forces (PMF), were among those killed in the attack.

As expected, the news break led a spike in oil prices while Futures in New York and London surged more than 4%.

In political uncertainty or fears of rising conflicts between two nations, especially involvement of the US, investors seek safety in Gold.

There are few reasons for the beginning of gold rush.

First: it works as inflation hedge (inflation surges due to higher crude oil prices) and Second: quick convertibility into liquid assets

The fresh conflict suggests the persistency of global risk which in turn will continue to boost gold prices.

Analysts expect gold prices to remain firm on the possible escalation in geopolitical tensions in the Middle East.

Gold prices sustain above $1545 could extend rally towards $1555-1564 in international market.

Data suggests that in 2019, the precious metal produced the highest returns seen in nearly a decade, despite the new highs recorded in stock markets across the world.

Replicating global movement, gold prices in India also broke records in 2019.

The months-long US-China trade war, geo-political tensions, buying from central banks and an increase in investment demand for gold for risk-aversion were among the main factors that lead to a sharp surge in gold prices in 2019.

Going ahead we expect that the real beneficiaries if the Gold price rise will be the hold finance companies like Muthoot and Mannapuram Finance as higher gold prices offer higher liquidity to borrowers as the assets value rises against the ltv followed by these cos as per rbi guidelines

A good monsoon will also mean that the second half should be good for gold finance cos where majority of their customers find from rural pockets who take short term loans against there gold assets

For gold finance cos the asset quality risk also reduces significantly in the scenario of rising gold prices as there loans are backed by solid intrinsic value of gold assets.

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