Gold prices in just 6 months have gone down by Rs. 10000 per 10 gm since touching record highs in Rs. 56200 per 10 gm and now are hovering near Rs. 46000 mark on the MCX in the future market. In the spot market, they are trading at Rs. 46690 per 10gm.
Now what should investors do?
From exorbitant gains to worst start in 2021, there is expected that gold prices shall further correct to levels of Rs. 41000 per 10 gm primarily due to resilience in the dollar and a jump in US treasury yield. As inflation fears remain due to stimulus measures from the global central banks.
Investors' strategy for gold investment
Gold should be part of every financial portfolio to serve as a portfolio diversifer as well as a hedge against inflation.
Over time it reaps good enough returns, and now as the metal is seeing continuing weakness, every dip shall be a buying opportunity and the best way to achieve rupee cost averaging shall be to buy gold in staggered amounts and not over 15% of the holding in gold should form part of your financial portfolio.
Now as the economic recovery has gathered pace there is seen fund diversion to 'equities and other riskier assets. Going forward risk of a second wave of cases, easy liquidity, global economic recovery will guide gold prices, said an expert.
"Technically, Gold is weak on daily charts and prices are trading below support of 200 days SMA which is at 48900. Here at level of ₹46,000 I have no surprise if value-seeking investor start investing and bottom-pickers start to show up to prevent a steeper price slide. The short-term trend is down according to the daily chart. Long-term investor can buy gold in the range of ₹45600-45800 with the strong support stop-loss of 44500".
What will be in favour of gold price?
- Stimulus measures
- Inflation concerns also boost gold's appeal
However we believe that the sell-off is overstretched given the US stimulus expectations and loose monetary policy stance hence fresh shorts should be avoided", Kotak Securities said in a note.
Demands inches higher
As the retail prices saw a decline in India, there was seen a boost in demand. And this shall also gain traction from economies like China after the Lunar New Year holiday. On Gold sale there is charged 12.5 percent import duty and 3 percent GST and on the market rates, dealer charge a premium which varies with the demand.
"Sales are robust. People are buying coins, bars and jewellery because of price correction," said Chanda Venkatesh, managing director of CapsGold, a bullion merchant based in the southern city of Hyderabad.
At the same time, there is also seen a push in demand for the white metal which has outstripped production."Demand for silver is tight because refiners cannot shift production overnight," said Joshua Rotbart at dealers J. Rotbart & Co, adding that premiums on silver products are going up exponentially.