Should you buy gold after the 20% fall?

Updated: Monday, April 15, 2013, 15:32 [IST]

International gold has dropped 20%, ever since it peaked in 2011 and last week itself the precious metal slumped 4.11 per cent. Indian gold which tracks international gold has also dropped and is witnessing a declining trend never seen in the last one decade. Gold Futures in India is down below the Rs 28,000 mark in a clear sign that gold is headed for its for its fall in the last 12 years.

Should you buy gold now?

Domestic gold buyers must understand that Indian gold tracks international gold and when prices fall internationally, they decline in India as well.

Gold has been falling largely because investors, particularly in the US are betting big on equities and when equities rally, gold prices remain subdued. A gush of liquidity in the US has pushed the stock markets higher there while fund houses are said to be selling gold ETFs.

In fact, gold ETFs saw a record outflow in the month of February, which is not good news for gold. More recently, billionaire investor, whose views are taken seriously said that gold has lost its safe haven tag.

Now, people looking to bet on gold, can wait for a further correction of 2-5 per cent, before buying the same. At that level gold would be an interesting bet, given that it's an excellent hedge against uncertain times. Remember, that there are simply too many risks around the globe, which is why gold is an excellent bet.

First, parts of Europe are still facing economic chaos. Now, there are worries that Cyprus would need additional bailout money. Not to mention that Greece, Spain and Italy would continue to be the grey sports in Europe.

Many believe that the economic recovery in the US could stall as the year progresses, and if that happens gold would rally. Thirdly, if threats of war on the Korean peninsula become real, there's no telling where gold could be headed. Ditto with worries over Iran.

Clearly, gold prices look attractive at the moment and if there is a little dip as mentioned earlier, one could buy into the precious metal.

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