Gold prices down over 20% from highs. Should you invest?
Amid a fall in the price of gold over rising US bond yields and a rally in domestic markets, analysts have said investors can start accumulating the yellow metal, which has been under pressure so far this year. Gold is down more than 20% or ₹11,500 after an all-time high of ₹56,200 in August last year. Gold futures ended at near 10-month lows of ₹44,640 on Friday on the Multi Commodity Exchange (MCX), after dropping more ₹1000 during the week. Gold has also come down to nine-month lows in global markets to below $1,700 an ounce as investors sold the precious metal to reduce the opportunity cost of holding the non-yielding asset.
Nish Bhatt, founder and chief executive of Millwood Kane International, said the yellow metal has been falling for the past few months and has lost more than 20% in value from the highs witnessed in August last year. “The fall in gold prices in the domestic market is in line with the international market prices due to the rising US treasury yields that make holding gold more expensive. The strengthening of the dollar also makes gold buying expensive. Heavy outflows from gold ETFs are also one of the reasons for the softness in gold prices," Bhatt said, according to Mint. "We expect gold prices to remain sideways in the short-term as vaccination drive across the globe picks up the pace which will lead to full normalcy in economic activities. The expectation of a rise in inflation due to excess liquidity globally may help gold prices in the medium to long-term," he added.
Debajit Saha, the lead metals analyst at Refinitiv, said the broader downtrend for gold is not over yet. "We expect the yellow metal to find decent support around $1685/oz level. It will try to scale up $1800 mark and may experience the selling pressure once again around that level. The broader downtrend for gold is not over and we expect it to touch $1605 by end of June or early July," he said, according to Mint.
Nirali Shah, the head of equity research at Samco Securities, also said investors can look to allocate a small portion of their portfolio towards gold for adequate diversification since gold has come down from its highs. Jigar Trivedi, a research analyst for commodities at Anand Rathi Shares, echoed the same sentiments, saying these are the best levels for investors to start accumulation.
"The sentiment is negative amid withdrawals from investment demand. Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust fell for the 13th straight session. The yellow metal is likely to stay under pressure since sentiment is weak in bullion space amid a sharp rise in the dollar index and bond yields in the US. MCX gold may find support near Rs. 43,900-43,600 in a short term," Trivedi was quoted as saying by Mint.