After a two-year advance from August 2018 to August 2020, gold has entered a consolidation phase over the past year
When the equity markets crashed last year due to the Covid-19 pandemic, it was gold which emerged as a saviour, with gold prices registering a remarkable surge to cross Rs 56,000 per 10 gram levels. However, since then, the price has fallen and for several months now, gold prices have remained subdued trading sideways at Rs 47,000-48,000 levels. While many investors still put their faith in gold as a stable asset class, there are many others who feel the bull run of gold is over. In this article, we explore what recent gold prices mean and whether you should consider investing in it.
Starting from basics, gold as an investment class offers a great hedge against inflation. It makes sense to invest in gold when inflation rates are high. Also, due to its stability in terms of prices, gold is a good investment when things do not look bright due to economic uncertainties.
“The gold industry is usually volatile in nature, considering various factors including inflation, global trade of the metal, and so on. With the current dip in prices of gold, it is an appropriate time to invest in it. We can expect a hike in prices in the coming months,” said Ankur Gupta, Founder and CEO, Ruptok Fintech.
After a stupendous two-year advance from August 2018 to August 2020, gold has entered into a consolidation phase over the past one year. Many investors and experts believe that gold is going through a consolidation phase and would see another bull run going forward.
According to Abhishek Chinchalkar, Head of Education, FYERS, rising global inflation, lingering Covid-19 worries, and low real-rates in the US have lent support to the metal at lower levels.
“The surge among global equities and expectations that the Federal Reserve could start normalising its monetary policy from 2023 are the key reasons that have muted the appetite for gold over the last few months. However, despite the short-term uncertainties, the bigger picture of gold is still bullish until it continues trading above Rs 44,000 level. Hence, we would advise utilising price corrections to buy the metal for the longer-term. From a portfolio perspective, we would suggest a 10-15 per cent allocation to gold,” he said.
On Wednesday, gold prices were near steady even as silver dropped sharply to a nearly four-month low in midday trading. According to Amit Khare, AVP- Research Commodities, Ganganagar Commodities Limited, the focus is the two-day meeting of the Federal Reserve’s Open Market Committee (FOMC) that ends Wednesday afternoon. “Inflation and economic growth prospects will be the hot topics traders and investors want to see the FOMC meeting address. The conclusion of the meeting, including Fed Chairman Jay Powell’s press conference, is likely to cause some market gyrations,” he said.
Khare added that technically, gold futures bulls and bears are on a level overall near-term technical playing field. He said gold prices have support at Rs 47,400 and Rs 47,200 levels whereas they would face resistance at Rs 47,725 and Rs 47,950 levels.
Gold currently is overlooked and unloved because of excellent returns in the stock markets, with not many people wanting to invest in gold. However, according to Raj Shamani, Investor and Entrepreneur, since one should buy when there’s maximum pessimism around gold and sell when there’s maximum optimism, perhaps this is the time to buy.
“Since we don’t know when the dip is going to come, we should look at systematically deploying investments every month to average out our costs in the market. Since gold has always been a comparatively safer option, I believe people should start thinking of gold as a small chunk from their portfolio in the current scenario,” he said.