After A Rs 2,000 Drop in 5-Days, Gold Prices Are Unlikely To Fall Sharply

Gold has been on a roller-coaster ride, since the US jobs data came out on Friday last week. Through the week, gold prices have been falling, though on August 12 (today), gold rates are finally set to open higher.

Spot gold prices 22 karats in select cities, Aug 12

City	22 karats (approximate)
Mumbai	Rs 45,450
Bangalore	Rs 43,500
Delhi	Rs 45,750
Chennai	Rs 44,000
Kolkata	Rs 45,950
Kerala	Rs 43,600

(The gold prices mentioned are approximate, as prices fluctuate and hence investors should check with their local jewellers for accurate prices)

Gold begins trending higher

To begin with, we must understand that Indian imports gold and we must look for external factors that move gold, which leads to higher gold prices in India.

On Aug 12, gold prices rallied across the globe as US consumer price inflation data came in on lines as expected. US inflation is an important data point for gold, as it leads to gold prices going higher or lower. When inflation goes higher, the US Federal Reserve would be forced to hike interest rates, if CPI persists, which pushes bond prices higher.

When bond prices go higher, it leads to a fall in gold prices, as investors seek shelter in the higher yielding bonds. The second big factor that could happen in the future is that the US Federal Reserve could reduce its bond buying programme, which would suck money from the system and lead to a fall in gold prices. However, we tell you later whether that could play out.

"Technically, Gold bulls are stabilizing the market after prices hit a more-then-four-month low on Monday. The gold bears still have the overall near-term technical advantage. Bulls' next upside price objective is to produce a close above solid resistance at $1,800.00. Bears' next near-term downside price objective is pushing futures prices below solid technical support at this week's low of $1,676.40. First resistance is seen at this week's high of $1,763.00 and then at $1,775.00. First support is seen at today's low of $1,724.30 and then at Tuesday's low of $1,716.50," says Amit Khare, AVP- Research Commodities, Ganganagar Commodities, Limited

Why you can go ahead and buy gold now?

We believe that after a sharp drop of almost Rs 2,000 for 22 karats in the last 5-days, gold prices are unlikely to fall sharply. The globe is constantly plagued with worries over a new corona virus and inflation may also have peaked in the United States. However, what would be the single biggest factor for gold going ahead would be the Jackson Hole meeting later this month, where the US Fed Chair Person may provide some hints on whether the US would announce a gradual withdrawal of its tapering plans. If that happens we could see fresh pressure on gold. If no such announcement is made, gold would continue to move in a tight range, and the probability of it going higher from here is a possibility.

Disclaimer

Investing in gold poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage houses are not liable for any losses caused as a result of decisions based on the article.