Gold prices hit a 5 and half year low in the international markets and a 4 year low in India ever since Chinese gold reserves which were revealed after 6 years were unexpectedly low. On the MCX gold was last traded at Rs 24,500 per 10 grammes, a level not seen in the last 4 years.
Many investors and those desiring to buy gold are asking if gold prices in India will fall any further. Should you wait or catch a falling knife is the question. Here are 3 reasons why you should still wait at least for a further downside of 3-5 per cent.
Investors least interested in gold and real estate as inflation remains low
Investors are chasing financial assets, particularly shares and stocks. Physical assets like real estate and gold have been pushed on the backburner. Global economic recovery is pushing international prices of gold lower, which in turn has pushed gold prices in India lower. Most analysts are expecting a further downside as low inflation has made real estate and gold unattractive.
The government has also been discouraging the use of gold, as it adds to pressure on the current account deficit, which is one reason why there is likely to be a gold bond. All this is likely to put pressure on demand and hence prices.
Also, if the import duty on gold prices is reduced it would make gold all the more cheaper and those investing at current levels could end-up losing more.
Interest rate hikes in the US
Most analyst are expecting an interest rate hike in the US in Sept. If that were to happen money would move from gold into bonds. It would be the first time in 7 years that interest rate hikes would happen in the US.
Gold prices have already fallen in anticipation of this. As and when the hike happens, expect a further downside in gold prices, which would push Indian prices even lower.
Rupee could strengthen against dollar
The rupee could strengthen against the dollar in the coming months. In fact, despite trouble across the globe the rupee has shown remarkable resilience. Should the rupee continue to strengthen it could make gold imports cheaper and hence gold prices lower in the domestic markets.
All in all it looks like gold prices are headed lower. Investors could wait for sometime instead of rushing to buy gold.