Gold prices off Rs 4,000 from all-time high; should you invest? Here’s what will fuel demand

The breakthrough in COVID-19 vaccine availability may trigger initial selling in gold prices on easing pandemic worries

Gold prices have been trading volatile in domestic markets after hitting a new all-time high of Rs 56,191 per 10 gram on August 7. Similarly, silver prices too fell sharply from a record high of Rs 77,949 per kg. In less than a month, yellow metal prices tumbled to below Rs 50,000 per 10 grams, Tapan Patel, Senior Analyst (Commodities), HDFC Securities said that the gold prices have experienced many corrections. In an interview with Surbhi Jain of Financial Express Online, he iterated that as the fundamentals of the gold look bullish, investors who want to invest in the yellow metal can enter at any dips in the prices. He chalked out a host of factors which will continue to boost safe-haven demand for gold, along with key risks which may cap the gains. In the Friday’s session, prices of gold futures on the Multi Commodity Exchange of India (MCX) slipped by Rs 252 to end at Rs 52,155 per 10 grams.

1. Has the gold rally subsided, as prices are down about Rs 5,000 from the record high in less than a month?

Gold prices have witnessed much-needed correction to clear out the overbought doubts amongst the investors. Gold prices are still holding the firm trading range limiting downside on market uncertainty over global economic recovery and rising COVID-19 virus cases.

2. Is it the time for the investors to invest in gold or wait for some more correction?

Gold prices have recovered after correcting to the support range of $1860 and Rs 50,000 on COMEX and MCX respectively. The broad fundamentals are still bullish for gold prices hence investors can enter at any deeps in the prices even at the current levels.

3. Do you think gold will be able to make a new high in the coming months? Where do you see yellow metal in three months from now?

The expansion of balance sheets form major central banks and infusion of stimulus packages will increase demand for gold on falling bond yields. We can expect spot COMEX gold prices to retain $2000 range with resistance at $2100 in the next three months.

4. Will gold and silver continue to be safe-havens going ahead?

The falling real rates and pressure on dollar index over record stimulus packages may keep demand for gold higher over the medium term. The slower than expected economic recovery, uncertainty over US presidential elections, geopolitical tensions and rise in cases of re-infection of coronavirus cases may continue to boost safe-haven demand for gold and silver.

5. What key risks and triggers do you think will cap the gains in gold?

The breakthrough in COVID-19 vaccine availability may trigger initial selling in gold prices on easing pandemic worries while stronger than expected economic data may keep upside limited in gold until central banks turn hawkish towards monetary policies.

6. MCX has launched its first Bullion Index called BULLDEX, how useful it is for traders?

The launch of Bullion Index is a revolutionary step from MCX. This will give traders, investors and physical players an additional tool to tap market volatility through hedging against future or cash positions.

7. What advice would you give to investors planning to invest in gold right now?

We advice to remain invested in gold to the extent of at least 5-10% portion of the total portfolio value at any point in time for investors. Investors can look at lump sum investment even now or else a staggered buying approach is recommended to benefit out of cost averaging. Investors should note that looking at the historic price performance, gold will not provide regular returns year after year but lumpy returns every 3-5 years.