Exclusive: Is Gold Losing Its Shine Amongst Investors After Correcting 5% From Recent Peak?

From their all-time high levels in May of this year, gold prices have lately seen a drop of about 5.46 per cent. Gold prices are now selling at about Rs 58790 per 10 grams on the MCX exchange, down from peaks of almost Rs 62,000 in May 2023. Gold prices rose to a record high on the MCX, exceeding the Rs 60,000 threshold per 10 grams.

In March of this year, MCX Gold futures reached a fresh all-time high of Rs 60,100 per 10 grams. According to Jateen Trivedi, VP Research Analyst at LKP Securities, gold is now even more alluring for buyers since it offers a more advantageous entry point following the recent correction from the peak of Rs 62000 witnessed in the physical gold market in May 2023. Based on an interview conducted with Jateen Trivedi, we have discussed how buyers can make their gold investment decisions in the upcoming festive season.

Q.1 Will gold become attractive to buyers during the upcoming festive season? Why?

Answer: Gold is poised to become increasingly attractive to buyers during the upcoming festive season for several compelling reasons. Festive seasons have consistently witnessed a surge in physical gold demand, particularly in the realm of ornamental jewellery, as consumers seek the latest and trendiest designs. After a period of subdued festivities, recent years have seen a resurgence in celebrations, rekindling the enthusiasm for gold. Furthermore, the recent correction from the peak of Rs 62000 observed in the physical gold market in May 2023 makes gold an even more enticing proposition for buyers, as it offers a more favourable entry point.

Q.2 Is gold losing its sheen among the investors as prices of the precious metal have fallen significantly from the high of Rs 62,000 per 10 gm?

Answer: Gold has not lost its allure among investors, as it adheres to its natural pattern of correcting 20-25% following a significant rally. In the lead-up to Diwali in September 2022, gold prices stood at 49000, and a robust rally ensued, propelling prices to 61750 by May 2023. Consequently, the current price of 59250 reflects a healthy 20-25% retracement of the preceding surge.

Q.3 Will the inflow in gold ETF witness a downward trend due to a correction in gold prices?

Answer: The trend in gold ETF inflow tends to exhibit a distinct pattern in response to gold price fluctuations. Historically, gold ETFs have seen subdued interest during price increases, while interest surges when gold prices stabilize or correct. Investors in gold typically adopt a long-term perspective and use price corrections as opportunities to acquire more gold. In contrast to equities, where panic selling is common during price declines, gold investors tend to hold onto their investments despite lower prices. Therefore, it's expected that ETF interest will rise once gold prices begin an upward trajectory after a period of consolidation.

Q.4 What will happen to the sovereign gold bond buyers who had bought the bonds at a higher price?

Answer: Sovereign gold bond investors who purchased bonds at higher rates need not be unduly concerned. These bonds offer annual returns of 2.5%, which serve to balance their portfolio over time. However, investors are encouraged to adopt a staggered approach when acquiring sovereign bonds. By doing so, they can accumulate gold at varying price points. For those who purchased at higher rates, this may be an opportune time to consider further investments when the next series of bonds becomes available.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.