Is the recent decline in gold prices a temporary aberration

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Is the recent decline in gold prices a temporary aberration
Introduction

The gold has continued its attractiveness amongst the Indian retail investors in 2012. The gold price in 2012 has witnessed yet another high continuing the rising streak from the past. Investors have unanimously accepted it as a hedge instrument against the inflation.

The launch of several physical and non physical gold investment products have added more flare to its accessibility and presence in the market. Breaching the significant level Rs. 30000 per 10 grams was a crucial point in 2012. The recent downward swing in the gold price that pulled it back from a peak to bottom below Rs. 30000 levels have created doubt in the mind of many investors.

Some investors' fears of a steep fall or range bound movement with no growth in gold in the coming days. Does it mean that gold story is over? Let's analyze further about the gold outlook

Gold Outlook

The story behind the 10 straight year of gold run is still remaining intact. Gold performed so well in the past years because of a widely accepted policy of growing the economy by creating more deficit through government spending and hence building an inflationary environment.

An increased interest rate to contain inflation has already backfired and added fuel in the escalation of the gold price. On the other hand cutting the key rates would further push the inflation higher and make gold attractive as a hedge instrument.

A strong economic growth is the only factor that can put pressure in the gold growth story but looking at the over heated global and domestic economy, there is very less chance of any dramatic speedy recovery in near future.

The Rupee to dollar value would also assist gold to sustain its upward trend. The domestic market would also see some momentum in gold demand due to upcoming marriage season.

The recent news of government's intention to impose import tax on gold can further support price escalation of gold metal in the domestic market.

Viewpoint for Retail Buyers and Investors

The retail buyers and investors can take position in gold with a holding period of not less than 1 years. In 2013, gold price can take a rest for some period before it starts a new journey towards new high.

There is very less chance of gold to dive lower, also there is no explicit reason to support any kind of steep price correction.

The gold is can show a range bound movement in the first quarter of 2013 and it is expected to stay around Rs. 30200 to Rs. 32500 range.

With inflation set to increase in coming days because of the expected increase in the price of diesel and LPG gas cylinder, the GOLD can play an important role of the hedge instrument in such situation. The emerging market and country like India, cannot sit back and wait for the global situation to improve, it has to grow at any cost and therefore inflation would stay strong in such economies.

So the gold story has still many pages to unfold, the prospect seems to be interestingly profitable for the investors. So, keep investing regularly for a safer and better return on your investment. Gold works as a shield under risky economic environment. With handsome return and hedge benefit of gold, investors can go ahead with the investment decision.

InvestmentYogi.com

Read more about: gold, investment
Story first published: Monday, January 14, 2013, 9:53 [IST]
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