Owing to the second wave of Covid 19 in the country and hence a threat to economic recovery, there is ample scope for the precious yellow metal to again hit fresh highs, there are some of the factors that may not support gold prices in the near to medium term. Here we will delve on the same, nonetheless as the bullion is expected to trade between Rs. 42000 to Rs. 60000 in this year, buying in dips is advised for investors.
Risk Factors That Can Pull Down Gold Prices
1. Hike in real rates:
If there is positive news around economic progress and the US central bank begins to normalize its policy and move away from its accommodative stance then there shall be given a boost to the dollar. And rising dollar weighs on gold prices in a negative way, i.e. when dollar inches higher, gold prices move down.
2. Outflows from Gold ETFs:
Demand and supply also called as the market factors dictate pricing of a product, which is true for bullion as well. And as there have been reported continuing outflows from Gold ETFs, it will further put a pressure on gold prices.
3. Rising bond yields:
As the treasury and gold both are considered safe havens, there exist a positive correlation between gold and bond prices but gold and bond yields are inversely related i.e. when bond yields trend higher there is pressure on gold prices. So, is the case now as the US treasury yield drifted to its highest level of 1.74% for the first time since January 2020.
4. Increase in supply and non-matching demand:
Given the higher prices, recycling rates are rising for gold and at the same time, mining supply also is witnessing an increase as the Covid 19 led restrictions eased. And now if similar level of investment or physical demand for gold is not seen then excess supply would again put pressure on gold prices.
At the local jewellers gold of 22K is trading at a price of up to Rs. 43000 per 10 gm depending on your city and on the MCX gold for April delivery fell close to 2% today (March 29, 2021) to below Rs. 44000 at Rs. 43800 per 10 gm.