Gold @Rs 47,000? Should You Buy, Sell or Hold?

Gold is trading at around the Rs 47,000 to Rs 48,000 levels on the MCX and is retailing at Rs 44,500 to Rs 46,000 for 22 karats for 10 grams, depending on the city you are in. To be honest, since the start of the year gold has gone nowhere. In India gold prices, in the month of April saw very little volatility and now investors are asking: should we buy or sell gold?

A look at the present factors moving gold prices

One of the biggest factors that is influencing gold at the moment is the movement of bond yields in the US. When bond yields move higher in the United States, we invariably see gold prices moving lower. Bond yields have largely been moving higher in the last few days, on fears of inflation moving higher in the US.

When international prices of gold move higher, they tend to push Indian prices of gold too higher. This is because India imports all of its gold requirements. So, to predict gold prices one needs to predict, which way inflation or subsequently bond yields would move in the US. Though, there are many other factors which move gold prates higher, this is one of the prominent factors these days.

 

Gold prices dip in India since the start of the year

Gold prices in Bangalore for 22 karats was retailing at around the Rs 46,800 level on Jan 1, 2021. Currently, it is trading at Rs 44,500, which means a drop of Rs 2,000 for 10 grams of gold. Despite the fact that the second wave of Covid is creating a havoc, investors are still lapping up stocks and have shown little faith in gold.

Gold being a safe haven asset, the belief is that ultimately vaccinations would play out and hence risks are far less than they were last year, when there was no vaccine in place. At that time gold prices soared as Covid-19 infections appeared a clear and present danger. Things are very different now with vaccines in place.

 

Gold prices unlikely to go higher in a hurry

As economic growth momentum gathers steam across the globe, investors are going to stay more invested in stocks and less into gold. This means, stocks are likely to be favoured unless some geo-political threats or something of that sort emerges.

Those desiring to invest in gold, should invest to just hedge their risks against more volatile asset classes. In short, if you are looking to invest, it should be as a measure of diversification more than anything else. If you are a long term investor, it might make sense. In the short term, it is unlikely that gold would rise sharply in a hurry.

In fact, at some point in time, as inflation rises in many countries, there maybe less easing around the globe. Tightening of monetary policies is a possibility, which should weigh on gold prices in the near future.

 

About the author

Sunil Fernandes has spent 25 years covering business and finance in India and abroad. Sunil has worked with frontline daily newspapers including Hindustan Times, Deccan Herald and Gulf Times. He has also worked with investment magazines like Dalal Street Investment Journal and Oman Economic Review. His forte remains stocks, mutual funds and tax planning.