Gold Outlook Expected to sustain glitter - ICICI Direct
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January 9, 2021
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Gold Outlook
Expected to sustain glitter…
ICICI Securities – Retail Equity Research
Research Analysts
Dharmesh Shah Dewang Sanghavi
dharmesh.shah@icicisecurities.com dewang.sanghavi@icicisecurities.com
1Gold expected to sustain glitter…
• Calendar year 2020 has been an unprecedented year for most commodities on account of Covid-19 related
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uncertainties. While commodity prices did witness a downward slide in January-March 2020, the same saw a smart
recovery during the remaining part of the calendar year. Yellow metal, gold, was no exception and saw its own share
of both peaks, troughs during the year. In CY20, yellow metal prices plunged to a seven-month low in March 2020
and then witnessed a sharp rally rebounding to all-time highs during the latter part of the year. Uncertainty in global
markets owing to spread of Coronavirus in Q1, Q2 of CY20 led to investors resorting to risk aversion, which fuelled
the rally in gold prices to all-time highs of US$2067 per ounce. As a whole, on a YTD basis till mid-December 2020,
gold has given healthy double-digit returns of 24% in international markets and 28% in the domestic market
• In the midst of Covid-19 related uncertainty, during CY20, gold, by virtue of being a safe haven asset class, did attract
good interest from both central banks across the globe and global gold ETFs. Furthermore, the weakness in the dollar
index coupled with falling yields have also played the role of a catalyst in supporting positive momentum of gold
prices. In the medium to longer term horizon, the accommodative monetary policy followed by majority of central
ICICI Securities – Retail Equity Research
banks coupled with expansion of balance-sheet with stimulus packages is likely to play a critical role in supporting
gold prices. With regard to Covid-19 pandemic, while there have breakthroughs in vaccine development, however,
availability and safety aspects for the same remain a key monitorable. Also, the recent surge in cases in Europe
(especially in UK) has prolonged the uncertainty phase. Hence, this is likely to sustain interest in safe haven
instruments like gold
• Gold has seen gains of 24% in rupee terms during CY20, its best year since CY11, boosted by unprecedented
stimulus measures rolled out by governments worldwide to combat the economic impact of Covid-19, alongside low
interest rates from central banks. Technically, it witnessed a breakout above the last nine year’s base formation.
Hence, the current breather should be used to accumulate for the next leg of the major up move towards US$2800/oz
levels over the next five years
January 9, 2021 ICICI Securities Ltd. | Retail Equity Research 2Overview of global gold demand and supply
Global demand-supply dynamics
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6000 410 500
4811
4770
4746
400
4689
4666
395
4594
4571
4542
4523
4496
5000
4436
4435
4408
4400
4353
4351
4314
4284
310 300
3589
252
4000
3394
3344
200
2911
tonnes
tonnes
3000 88 100
82
ICICI Securities – Retail Equity Research
0
2000
-100
-123
1000
-200
-247 -256
0 -300
2011 2012 2013 2014 2015 2016 2017 2018 2019 Jan-Sept Jan-Sept
2019 2020
Demand (LHS) Supply (LHS) Surplus/deficit (RHS)
Source:: World Gold Council , ICICI Direct Research
January 9, 2021 ICICI Securities Ltd. | Retail Equity Research 3Gold demand by segment, break-up of overall mine supply
Share of jewellery in overall demand declines due to pandemic Supply trend remains flattish during period CY17-CY19
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120 4000
14 3500
100 2 14 13 8
9 10 12 9 9 15 15 3000
5 5 38 12 6 2
80 24 25 9 2500
34
tonnes
29 24 25
31 28 25 20 2000
60 8 8 8
11 8 8 7
8 7 1500
%
9 22
40 1000
60 58 57 7
49 44 46 46 53 51 49 500
20
29
0
0
2010
2012
2013
2014
2015
2016
2017
2019
2011
2018
Jan-Sep 2020
Jan-Sep 2019
2010
2011
2012
2015
2016
2017
2018
2019
2013
2014
Jan-Sep 2020
-20
ICICI Securities – Retail Equity Research
Mine Prodcution Recyled gold
Jewellery Technology Bar & coin ETF Central Bank & others
Record high gold prices and lockdown restrictions
deterred consumer sentiments for physical gold.
During first 9 months of CY20, mine production
However, strong growth in global investment
was down 5% YoY to 2477 tonnes, while supply
demand partly offset weakness. Jewellery demand
from recycled gold remained constant YoY.
fell 46% YoY in January-September 2020. Inflows in
Recycled gold supply in Q3CY20 was at 376
ETF were up a staggering 168% YoY (1003 tonnes
tonnes (highest quarterly total since Q4CY12)
were added globally in first nine months of CY20).
Source:: World Gold Council , ICICI Direct Research
January 9, 2021 ICICI Securities Ltd. | Retail Equity Research 4Central bank gold reserves
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Gold holdings of Top 10 countries as on December 2020
9000
8133
8000
7000
6000
5000
tonnes
4000 3362
ICICI Securities – Retail Equity Research
2814
3000 2452 2436 2299
1948
2000
1040
765 670
1000
0
United States Germany IMF Italy
France Russian Federation China, P.R.: Mainland Switzerland
Japan India
Source:: World Gold Council , ICICI Direct Research
January 9, 2021 ICICI Securities Ltd. | Retail Equity Research 5Gold demand from central banks, ETF at multi-year high
Central bank holdings for gold at record levels… …with higher demand for gold ETF investments
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4000
36000
35000 3500
34000 3000
tonnes
tonnes
33000 2500
32000 2000
31000 1500
30000 1000
Q1 2010
Q3 2010
Q1 2011
Q3 2011
Q1 2012
Q3 2012
Q1 2013
Q3 2013
Q1 2014
Q3 2014
Q1 2015
Q3 2015
Q1 2016
Q3 2016
Q1 2017
Q3 2017
Q1 2018
Q3 2018
Q1 2019
Q3 2019
Q1 2020
Q3 2020
ICICI Securities – Retail Equity Research
2010
2011
2012
2013
2015
2017
2018
2019
2014
2016
Nov-20
World gold reserves ETF holdings
Central banks remained net purchasers on YTD In CY20, total Gold ETF holding increased 32%
basis, with net addition for first three quarters YTD to 3793 tonnes (as on November 30, 2020).
totaling to 220.6 tonnes.
Source:: World Gold Council , ICICI Direct Research
January 9, 2021 ICICI Securities Ltd. | Retail Equity Research 6Weakness in Dollar Index aids uptick in international gold
prices…
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Dollar Index International gold prices
105 2200
2000
100
1800
95
US$/oz
1600
90
1400
85
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1200
80 1000
Feb-17
Feb-18
Feb-19
Feb-20
Feb-17
Feb-18
Feb-19
Feb-20
Aug-18
Aug-19
Aug-20
Aug-17
Aug-18
Aug-17
Aug-19
Aug-20
May-17
May-18
May-19
May-20
May-17
May-18
May-19
May-20
Nov-16
Nov-17
Nov-18
Nov-19
Nov-20
Nov-16
Nov-17
Nov-18
Nov-19
Nov-20
The weakness in dollar index played the role of a catalyst in supporting positive momentum of gold prices.
Source:: World Gold Council , Bloomberg, ICICI Direct Research
January 9, 2021 ICICI Securities Ltd. | Retail Equity Research 7MOMENTUM PICK
Technical Outlook
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January 9, 2021 ICICI Securities Ltd. | Retail Equity Research 8Gold spot ($1880): Resumption of bull trend, current breather
should be used to accumulate….
Quarterly Bar Chart Target of $ 2800 in the
next five years
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• Gold prices after a multi-fold rally in 2070
CY05-11 ($410-1921), witnessed a
base formation in the last nine 1921
years, thus forming a base for the
next leg of the up move
• The base of the entire nine year Breakout from
consolidation is placed around the Seven year Support @
50% retracement of the CY05-11 consolidation range $ 1650-
rally. A shallow retracement and 1600
1380
higher base formation highlights a
2005-11
positive price structure
multifold rally
ICICI Securities – Retail Equity Research
• In CY20, gold prices registered a
breakout above last seven year’s
consolidation range ($1380-1025)
highlighting resumption of the multi- 1025
year rally
Higher base near the 50%
• Gold prices, over the next five years retracement of the 2005-2011
are expected to head towards rally (410-1890)
$2800 as they are last nine year’s
range breakout (1921-1025=896
points) added to the breakout area
of $1921 signalling upside towards
410
$2817 levels (1921+896=2817)
Source: Bloomberg, ICICI Direct Research
January 9, 2021 ICICI Securities Ltd. | Retail Equity Research 9MOMENTUM PICK
Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com
ICICI Securities – Retail Equity Research
ICICI Direct Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
research@ICICI Direct.com
January 9, 2021 ICICI Securities Ltd. | Retail Equity Research 10Disclaimer
We /I, Dharmesh Shah, Dewang Sanghavi MBA (Finance) Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We
also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the
companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.
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