Gold May Move Sideways After Solid Drop

Gold prices in India have plunged after having a solid run in 2020. Gold rates in cities like Mumbai, Delhi, Chennai and Bangalore are now almost Rs 10,000 down from peak levels.

Spot gold in the global markets have eased considerably and are now down to $1,693.79 per ounce, having earlier dropped to its lowest since June 8 at $1,688.96.

One of the top reasons for the fall in gold prices are worries that economic recovery is gathering steam and it may lead to inflationary pressures.

When inflation plays out it tends to lead to an increase in interest rates by central banks across the globe. The 10-year U.S. Treasury yield climbed back above the 1.5% level on Thursday after US Federal Reserve Chairman Jerome Powell said there was potential for a temporary jump in inflation and that he had noticed the recent rise in yields.

Says Nish Bhatt, Founder & CEO, Millwood Kane International, "After having a dream run in 2020, the yellow metal has been falling for the past few months losing more than 20% in value from the highs witnessed in August 2020. The fall in gold prices in the domestic market is in line with the international market prices post comments of the US Fed Chairman on inflation and bond yield.

Commex Gold prices fell due to the rising treasury yields that make holding gold more expensive, the strengthening of the dollar also makes gold buying expensive. Heavy outflows from Gold ETFs are also one of the reasons for the softness in Gold prices.

We expect gold prices to remain sideways in the short-term as vaccination drive across the globe picks up the pace which will lead to full normalcy in economic activities. The expectation of a rise in inflation due to excess liquidity globally may help gold prices in the medium to long-term."