In the 18-day epic war of Mahabharata, vengeful Arjun took a terrible vow, after his son Abhimanyu was killed by the deceit of kauravas. He swore that he would kill himself if he was not able to find and punish (kill) the main perpetrator, Jayadrath, by sundown.
As darkness enveloped the battlefield, apparently due to sunset, Arjun prepared to enter the funeral pyre. However, just as he was about to enter, the sun came out of the moon’s shadow and shone in all its glory (it was a solar eclipse then).
It was then that Krishna said (words to that effect), “Hey Arjun! There is the Sun and there is Jayadrath (pointing to the man who had come out of hiding to see Arjun enter the pyre).
Gold too seemed to have its own baptism by fire during the solar eclipse on December 26, 2019. For the yellow metal that seemed moribund below the USD 1,500 per ounce mark for several weeks and destined to end the year below that mark suddenly jumped the gun on the 27th and ended the day at USD 1,511.50 per ounce (London pm fixed) from USD 1,490 85 per ounce on the 24th afternoon.
With the uncertainty over Brexit, Trump’s impeachment, suspense over rate cuts by the US Fed and the Sword of Damocles over the US-China trade war resolved for the time being, gold had no extra baggage to take care of and went with the flow as it easily crossed the crucial USD1,500 barrier.
Technical analysts now see gold investors that were short on gold for some time, are now going long on the yellow metal. They even see a USD 250-300 per ounce rally in gold during the New Year to around USD 1,700-1750 per ounce levels.
It is to be seen whether gold scales new heights in the coming decade or runs out of steam. Let us look at past history to find out how things would pan out in the future. Back in the late 80s, gold ended the previous decade with an average price of USD 304.69 per ounce and a high of USD 512 per ounce.
High oil prices coupled with high inflation saw gold reach its all-time high of USD 850 per ounce in 1980. However, thereafter, the yellow metal went into a tailspin as it ended the 80s with an average price of USD 389.79 per ounce with a high of USD 415.80 per ounce.
The 90s saw the gold price slide further on account of central bank sales that ultimately resulted in an agreement to cap sale of gold by central banks.
Then, hedging by gold mines too played a part in lower gold prices. Even the currency crisis in East Asia in the second half of the 90s failed to lift up gold. The yellow metal ended the millennium with an average price of USD 278.57 per ounce and a two decade low of USD 252.80 per ounce.
The decade in the new millennium saw gold rise over the decade from an average of USD 279.10 per ounce in 2000 to USD 972.35 per ounce in 2009 with a high of USD 1,212.50 per ounce.
That was a precursor to gold scaling its all-time high of USD 1,926 per ounce in September 2011. The factors which aided the rise in gold prices were: de-hedging by gold miners, net buying of gold by central banks, lower interest rates and quantitative easing by the Fed and the EU.
More importantly, the global melt-down, led by the crash of Lehmann Brothers that triggered investor buying in gold ETFs in the western world and continued demand for gold from India and China with their double digit growth economies.
Thereafter, the yellow metal cooled down as global economic scenario improved during the decade and gold declined towards the USD 1,000 per ounce mark twice; once in December 2015 (at USD 1049 per ounce) and then in September 2018 (USD 1,178 per ounce). However, since then in 2019, gold has been in ascendancy with a high of USD 1,550 per ounce plus in August 2019.
Even after some hiccups the yellow metals seems comparatively confident of scaling newer highs in the coming decade. The US-China trade agreement does not still appear to be a done deed. Trade disputes could always disrupt the deal. Brexit could still be delayed and cause uncertainty in the European markets.
The Fed and the EU may have to lower rates and re-introduce quantitative easing as global economy is still very vulnerable. Investors continue to buy Gold ETFs and Central banks’ gold purchases continue to increase. However, two of the biggest buyers of physical gold, India and China, have to deal with both their economies slowing down.
Finally, in the year of the Olympics will gold outshine all asset classes? Wait and watch.
The author is an independent analyst of precious metals and diamond, who has worked with GFMS and WGC.
