Gold in the international markets dropped almost 3% and what followed was a drop in Indian spot gold rates by about Rs 600 in the last one week, per 10 grams for 22 karats.
How Gold rates for 22 karats in select Indian cities have fallen?
|City||Sept 11||Sept 18|
So what led to the decline?
Let's begin to understand that Indian prices are linked to international prices and in the international markets if they fall, they move lower in India too. Stronger than expected retail sales in the US, led to a spike in treasury yields and a near 3% drop in international gold prices. The belief is that if data continues to be strong, the US Fed would start tapering its bond purchase programme faster than anticipated. This means that liquidity would start flowing out of the system and this had its impact on gold prices.
Also, the belief is that if the data continues to be strong, we might see interest rates rise sooner than expected, which is not good news for gold. When interest rates rise, gold prices tend to fall and vice versa.
The key to immediate short term movement of gold in the global markets would be the US Fed meeting slated for early next week. Should the US Fed indicate a timeline for tapering, we would see gold prices fall a bit more. In short, gold is likely to see volatility in the next week. It's always hard to predict price movement in either direction for gold. It all depends on a host of factors including news that is emanating in the short to medium term.
How Gold ETFs In India have performed? Should You Buy Gold Now?
|ICICI Prudential Gold ETF||-10.32%|
|SBI Gold ETF||-10.30%|
|Invesco Gold ETF||-10.75%|
|Nippon ETF Gold||-10.63%|
|Birla Gold ETF||-10.40%|
The returns from gold ETFs over the last 1-year has been -10%. What this means is that it offers an investor the opportunity to invest in gold at a price that is 10% lower than last year. Now, if global economic momentum gathers steam, it's unlikely that gold would generate good returns. Gold gives returns when things take a turn for the worse, be it economic chaos or covid.
It is a safe haven asset, so for gold to really give returns, a few things must go wrong, which is possible in times like these. What we almost always advocate and tell readers to keep at least some money invested in gold, particularly gold ETFs. It is very unwise to buy gold in physical form, because of margins, theft related issues and storage charges. Gold ETFs track gold prices and are the best and safest way to invest. You can buy gold ETFs if you have a demat account and the above mentioned gold ETFs are suitable for investment. Having said that ideally one should have a diversified portfolio and gold should at least form 10% of that investment to hedge risks.