Since the beginning of August gold prices in India have fallen a good Rs 4,000 for 22 karats. On August 1, 2020, 22 karats gold in India was trading at Rs 52,500, which has now fallen to Rs 48,450 per 10 grams.
International prices fall
In fact, by the end of the day, we would see a further slide in gold prices as international markets are seeing gold prices drop sharply. On Tuesday, US President Donald Trump halted new stimulus talks, pushing the dollar higher and gold lower. Spot gold in the international markets fell by 2 per cent at $1877 an ounce. If gold falls in the international markets, it drops in India too, as the country imports almost all of its gold requirements.
Another factor that is leading to a drop of gold in the global markets is the strength of the US dollar. When the US dollar moves higher against a basket of currencies, it tends to push gold prices lower and that is what is happening currently.
Stocks rallying and gold falling
Stock markets have been rallying over the last 1 week as economic data reveals that the covid induced slowdown of the global economy may not seem as bad as made out to me.
When economic data is better, investors dump gold in favour of stocks. In fact, if there is no major bad news from here on and the economic recovery across the world is good, we might see gold fall a tad bit lower. There has been too much of bad news lately, which has pushed gold prices higher.
It will be extremely difficult for gold to breach its higher levels seen earlier in July-August.
Should we buy into gold with the price fall?
Gold has been the best asset class in the last 1 year and everything that rallies sharply can come-off. We believe that one cannot constantly have bad news, which helps gold to rally. In fact, the Covid-19 propelled rally may now well be over. From here on, may be steady or in fact dip a tad bit lower.
For investors it maybe a good idea to hold onto gold, so as to diversify their portfolio. For those looking to buy into gold, it maybe a good idea to buy into dips. However, expecting a rally of 30 per cent to 40 per cent, as we have seen in the last 1 year maybe too far-fetched.
Gold can be a "buy on dips" strategy, rather than chase the precious metal at any and every price.
About the author:
Sunil Fernandes has spent 26 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, debt, commodities and tax planning.