Is Gold A ‘Buy' Now After Nearly 20% Correction In A Year?

Gold prices in a year's time has corrected substantially from highs of Rs. 56,200 just a year ago on the MCX and last on August 23 quoted at a price of Rs. 47,216 per 10 gm, an almost 19% fall in a year's time.

So what lies for the yellow metal ahead- Will it shine or lose its sheen further?

For now gold prices even while being supported by raging delta variant cases has got a support, the likelihood and Fed hints of tapering instance has lent support to dollar or the greenback that has weighed on the yellow metal gold.

This month we even saw gold diving to levels of even below $1700 levels on the better than expected non-farm payrolls data which pushed the demand for the safe haven and hence gold prices suffered.

Analysts for now have a divided view on gold while UBS' advices investors to square off their position in the metal considering further slide below $1700, other analysts including the likes of Goldman Sachs has seen to it again inch above $2000 per ounce, by the year end of 2021.

Factors that can be positive for gold

1. Delta variant cases continue to be seeing restrictions and is even said to be most responsible for cases in India:

China is seeing a rise in the delta variant cases and hence restrictions are being triggered and this may ramp-up risk-off sentiment and hence 'safe haven' appeal may see an increase.

2. Correction in equities can be good for gold:

Equities globally saw overwhelming gains and are at record highs, but any tapering sooner or later will trigger or has a potential to trigger a steep correction and hence we may see risk-off sentiment developing among investors, driving them to safe haven gold and hence boosting the latter's price.

Factors that will fuel downside in gold

1. Oil prices continue to decline internationally:

 

Coronavirus situation has also weighed on the demand recovery of the commodity and apart from it the latest stock piles is also pulling down the price of crude internationally. Now as both are explored from the earth, there is limited amount availability and further as both the commodities are priced in dollar, the 2 share a direct relationship, i.e. when the oil prices, there is also seen a gold price fall.

2. Gaining dollar:
Of late after the latest Fed minutes of a possible tapering sooner, dollar or the greenback has being on the upward trend. As at the time of writing this copy, the dollar index- last as on August 23,2021 12:22 am EDT quotes with a decline of 0.19% at 93.32.

This is even as the dollar for last few sessions was trading over 9 month high, nonetheless, there has been seen gains in the dollar yield which is up by 0.8% at 1.270. Gains in the US benchmark yield also cast a negative for the gold.

Should you buy gold considering possible downsides?

Even before the Fed hinted of a possible tapering gold experts suggested that gold will continue to decline for some more time before moving upwards, there is always a benefit out there with gold investment which has the potential to yield multibagger returns in a decade and also helps an investor to diversify as well as hedge one's portfolio against inflation. So, with gold investments you may never go wrong, but the key is to buy in a staggered way which can average out the cost and maintain 10-15% of your funds in gold asset class.

Disclaimer:

Readers be mindful we are just highlighting the prospects of gold going ahead and this is never an investment advice to buy into gold. You need to always check your profile before betting on any investment product for that matter.

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