USD and Gold

Weekly update — 29 September 2020
Image for post
NASDAQ whale (September 13), Russian vaccine news (August 16) and India’s trade surplus data (July 19) are outliers.

Last week, we noticed heightened volatility across equity markets. After initial drawdowns, the latter half of the week (and yesterday) witnessed a clawback across markets. Overall, the NIFTY and the NIFTY Midcap were down ~2.5% in the last six trading sessions (including yesterday), while the S&P posted modest gains. However, the week witnessed a sell-off in Gold — Gold BeES was down 4.5% — primarily driven by strength in the US Dollar. Gold is predominantly priced in US Dollars.

Consequently, an increase in US Dollar rates will result in a lower value for USD-priced gold across global markets.

USD/INR rates in India counter this — an increase in the US Dollar vs INR will balance the rise in USD-priced gold. However, over the last two weeks, we’ve seen a dispersion between USD (vs global currencies) and USD (vs INR), which is pulling prices lower.

Jobs support continues

The UK announced a six-month job support scheme, while Democrats in the US proposed a 2.2 trillion relief package to continue direct payments to support the unemployed

The US proposed increases in wage-levels for H-1B visa holders, and announced a training programme to equip local talent—over the medium term, IT companies are likely to step-up local hiring and reduce translocating Indian employees

Walmart and other big e-commerce giants announced plans to recruit 1,000s of temporary staff for the upcoming holiday season

Isolated reports point to workforce shortages across industries owing to large-scale migration over the last few months

Consumer confidence continues to improve

Housing sales were up 34% during July-September, compared to the previous quarter — still nowhere close to pre-pandemic levels

Tractor sales were up 75% in August, on rural demand from a good Kharif season, and pent-up demand

56% increase in consumer spending since lockdown began, according to a survey by Standard Chartered — however, users are still cautious towards expenditures for leisure, travel and hospitality

Home-loan and auto-loan inquiry volumes are back to 2019 levels according to CIBIL — this could also be a result of pending transactions (from the previous quarter) or a result of consumers searching for lower interest rates

Stable business environment

It could take until September 2023 for India and the World to get back to pre-pandemic levels, according to McKinsey — several reports from brokerages and consulting firms continue to point towards an elongated recovery

Rail freight traffic reported 4% growth in August — discounts in freight-rates have increased railways’ share in the transport market to 40%, compared to lower than 30% earlier

Allocation changes

We believe the recent fall in gold prices offers an opportunity to enter gold — it’s already up 1.8% as we write this note. Consequently, this week, we may allocate ad-hoc to Gold ETFs.