Gold prices down Rs 12,000 from record highs. Is it the right time to buy?

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Gold slumped to a near nine-month low on March 5 and it seems like it is headed for a third straight weekly decline after Federal Reserve Chair Jerome Powell disappointed investors with his view on rising yields that pushed up the dollar and bond yields.

The US 10-year yields held above 1.5%, while the dollar surged to a three-month high. Higher yields increase the opportunity cost of holding bullion, which pays no interest.

Gold rates have fallen in eight out of the past nine days, its lowest in 9 months.

MCX Gold futures were down 0.3% to ₹44,400 per 10 grams, while MCX Silver futures were down 0.6% to ₹65,523 per kg in morning trade.

Gold prices have declined by over ₹12,000 per 10 gram from its highs of Rs 56,200 in August 2020.

Analysts say the fall in gold prices has boosted the demand for physical gold. Jewellery demand has also shot up with people flocking the shops to buy wedding jewellery at attractive prices. Most people find sub-Rs 50,000 level comfortable for gold purchase and the demand in both urban and rural customers have witnessed a surge.

As for an outlook on gold prices, Hitesh Jain, Lead Analyst -Institutional Equities, Yes Securities has said, “Although gold prices have tumbled recently in the wake of rising sovereign yields, we do not think yields will sustainably rise given the fact that governments do not favour higher yields on their accumulated gigantic debt.”

“We assume that central banks will eventually rein in the yields with their asset purchases and also help their respective governments in keeping the borrowing costs low. On gold price trajectory, we still remain bullish considering the unprecedented government stimulus, bloated Central bank balance sheets and burgeoning sovereign debt”, he said.

However, the analyst has also said that this is tantamount to the debasement of currencies like the greenback. A structural decline in USD against the basket of currencies will also underpin the value of an alternative currency like Gold.