Off late gold prices are seeing huge volatility and have fallen remarkably from its all time highs struck in early August this year. And now after the US stimulus hopes being announced before the elections in November are withering away, dollar has strengthened in the international markets which is weighing on the gold prices. Gold on the MCX in India on October 15, 2020 went lower to Rs. 50314 per 10 gm, while last it was trading at Rs. 50425, having gained marginally from day's low.
In the international markets too gold after breaching psychological high of $2000 per ounce is now hovering in the range of $1850-$1890 per ounce, i.e. well below even $1900 per ounce level.
But the current fall should not push investors to book their profits and here are given few compelling reasons as to why any downward drag on the precious yellow metal should not be a concern for you:
1. Gold is moving largely in a range:
There is not a constant correction in gold prices and had it been the scenario then the losses over a time could be a cause of concern and investors' may then be pushed to think of an approach to deal with the movement in its price. For the time being, the dollar index strength is imparting weakness to the precious metal's price on a proportionate basis.
2. Correction in gold is accompanied by gains for other financial instruments such as equity and bonds:
Herein what needs to be noted that when gold loses appeal, there is risk on sentiment that is moving the markets and with it equities and other avenues may gain. As is the case now, Indian equities have gained for the last 10 days and Indian bonds also gained after the RBI's announcements which spurred the sentiments in the bond market.
3. Gold makes up for a good financial portfolio constituent in times of crisis:
Gold is a safe haven that is taken shelter of in times of crisis and with uncertainty ahead even if it corrects in price for a while now, it should not bother one to offload its position. This is as gold serves as a hedge against both inflation and currency debasement.
Also, it is vouched for its ability to serve as a portfolio diversification asset as well as can reduce the overall portfolio risk due to exposure to market linked securities in the portfolio.
Now, as the dollar strength is partly owing to risk aversion, the temporary gains in dollar will be wiped off in due time and the correction should be taken as an opportunity to take position in this strategic asset that has more upside left.