In the morning session on September 21, 2020, while even as international rates traded higher, gold prices in India were beaten down despite the coronavirus led curbs globally and weaker dollar.
And as the day progressed there was seen a sell-off similar to the equity markets in gold too, which plunged to levels below Rs. 50000, hitting an intra-day low of Rs. 49815 in the futures market, to settle down by 2.41% or Rs. 1244 at Rs. 50471 per 19 gm and silver too bleeded heavily by close to 10% to settle down by Rs. 6561 at Rs. 61,316 per kg.
Here are suggested reasons for the possible drag on the precious metal prices and what should expect going ahead:
1. Dollar rebound:
Amid a lot of certainty investors and dealers in the market shifted their focus to comments from some of the key officials from the US Fed who will likely provide cues of the US Federal Reserve's monetary policy and view on inflation targets. And this is likely to impart further strength to the greenback and hence lower down global gold prices. Later in the day, the dollar index was seen gaining 0.9% and traded at 93.79.
2. UK and Europe likely gripped under second wave of coronavirus infection:
Some of the countries including the European are seeing a threat of second wave of coronavirus infection which is forcing the governments there to announce further curbs to check the spread of coronavirus.
Back in India, Cadila chief asserted that vaccine alone would not solve the country's Covid 19 situation.
3. Alleged banking fraud:
While equities and gold do not share a direct relationship and if the equities fall gold tends to gain but this time, on alleged banking fraud revelation through leaked FinCEN files, similar to sell off in equities, gold too witnessed selling pressure.
What Should Investors Do?
Gold prices have plunged sharply and this correction to lowest level in almost 2 months was highly anticipated, given the sharp run gold has witnessed in over a year's time.
Bullion prices are expected to decline in the week ahead as the UK is pondering a second, shorter 'mini' lockdown for two weeks to counter resurgence in coronavirus cases. "Moreover, concerns about the health of the global economy, and weak industrial demand from China and Asian countries is expected to further pressurise global and domestic prices." Sunandh Subramaniam, Senior Fundamental Research Analyst, Choice Broking said.
"Looks like we may see Rs 48,500 levels on gold and Rs 61,000 on silver", Sunilkumar Katke, Head of Commodities and Currency at Axis Securities, expects.
So, as suggested investors with surplus cash and willing to take a dig into precious metal need to wait for yellow metal to further correct in price.