Should you buy gold futures at 8-month lows?

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Should you buy gold futures at 8-month lows?
Late last week Gold Futures hit an eight month low, mirroring a weak price trend for the commodity internationally. Gold for April delivery on the Multi Commodity Exchange was trading at Rs 29,337 per 10 grams today, marginally higher than Rs 29,111 last week, a level last seen in mid-July.

Should you buy Gold futures?

Whether it's technically or fundamentally, analysts believe that gold has a negative bias. In India, gold rates are determined by international prices of gold and the rupee. Now, the rupee has been moving higher against the US Dollar, which makes gold cheaper and internationally gold prices are falling. So, both the variables are not in favour of a price rise for Gold Futures in India.

The real worry is international prices

Ever since it peaked in September ahead of the US Federal Reserve meeting to decide on quantitative easing, international prices have been falling. Since Jan, the precious metal has fallen 6 per cent and the threat of gold breaking it's 12 year winning streak is real.

The reason for the fall and disinterest in gold is simple - equities. Bet on risky assets has ensured that prices of gold stay depressed. A lot of the easing money across the globe unleashed by central banks is flowing into equities as things get better around the globe. To make matters worse last month there was large scale withdrawal from Gold ETF's internationally, which poses a natural threat to gold prices.

Another reason of course is the dollar. There's always the case that a weaker dollar makes gold
across the globe cheaper, increases demand for gold, which in turn drives up the price. Exactly the opposite seems to be happening at the moment.

In any case, if you are betting on gold and gold futures, the best thing would be to wait for prices to dip further. There's little chance for a smart rally in gold, unless something goes horribly wrong economically around the globe.

GoodReturns.in

Read more about: gold futures
Story first published: Tuesday, March 12, 2013, 10:46 [IST]
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