After seeing a sharp fall, gold prices from Rs. 44800 on April 1 to Rs. 48085 today (April 21) on the MCX have gained over 7 percent in April alone. At present what is supporting rise in gold price is retreating levels of US treasury yields as well as softer dollar."The U.S. dollar had edged lower this morning, supporting prices, with gold's upward momentum from overnight continuing in Asia," OANDA senior market analyst Jeffrey Halley said.
"Providing that U.S. 10-year yields remain softer, gold appears to be gathering strength for a test of the 100-day moving average at $1,802 an ounce in the days ahead."
What is supporting rise in gold prices?
Inflationary concerns led by global stimulus measures will also be supportive of gold prices in the medium to long run.
Ultra-low interest rates (dovish stance worldwide of global central banks)
Falling yield and dollar
Physical demand ahead of wedding season and festivities is also pushing gold prices higher.
"The uncertainty on the pandemic front is back. New waves and variants of the virus, and the resulting lockdowns, could trigger pullbacks in risky assets like equities. Gold could benefit from the resulting risk aversion, as happened last year," says Chirag Mehta, senior fund manager, alternative investments, Quantum Asset Management Company.
According to Hareesh V, head of commodity research, Geojit Financial Services, "Any signs of weakness in the global economy could lift sentiment in favour of the yellow metal higher".
Gold will also find support if equity tumbles
Equities are suggested to be highly volatile though the timeframe shall not be that long. Now if in the midst of economic slowdown amid curbs, earnings come in weak and investor turn jittery. In risk-off mode, gold will gain favour and this will again brighten the prospects of gold.
FDs also offer negative real return:
As the deposits in the current scenario of one year tenure offer nothing or rather negative real rate of return. So, in order to preserve their capital or retain their money's purchasing power, investors find safe haven in gold.
Current prices provide an entry point into gold for long term allocation
Gold as an investment should be looked at from long term horizon of say 5 years or more to get the capital appreciation benefit.