Gold prices: The external hand provides opportunity

Gold seems to be losing its sheen as the prices have been steadily slipping to trade near five-week lows. Gold prices in Delhi tumbled Rs 1,130 to Rs 45,207/10 grams on the week ended September 17, tracking the decline in international precious metal prices. In fact, Gold has been hovering near one-month lows of $1,760 an ounce after losing sharp $40 dollars this week, its worst weekly decline in two months. The drop came in at the back of much stronger US retail numbers that indicated signs of recovery in the economy. The US job data also helped lift the 10-year treasury yields, hurting gold’s appeal as an inflation hedge.

Gold has traditionally done well in the wake of uncertainty and any indications of the economy doing well shifts focus to other asset classes like equity. Indian markets have been trading at record levels and have recently taken over France as the sixth largest by market capitalisation.

Gold prices have, so far in 2021, witnessed negative returns, falling 8% compared to 2019 and 2020 where it clocked in 10% and 21% returns, respectively. Gold prices had started the year on a negative note as the reopening of the global economy and large-scale vaccination improved investment sentiment in riskier assets.

For gold, bears look in control of the market currently with all eyes on what could be a hawkish Federal Reserve meeting next week. Improving US economy may hint a taper coming sooner than later. Experts are also of the view that if the US economic data continues to surprise on the upside, gold could be in store for another selloff.

So, should investors rush to their nearest gold stores? While consumers seem interested in buying gold at lower levels, the range-bound movement is leading to the postponement of investment decisions along with the reopening of the economy, leading people to again spend more on travel, shopping and eating out, leaving lesser money in hand.

As per a wider expectation, gold prices may slip in the near term however, in the domestic markets, experts are pinning their hopes on the upcoming festive season to record higher demand. Those exploring investment opportunities in the yellow metal must determine what is their purpose of buying gold – to make jewellery or as purely as an investment. If the purpose is latter, experts advise 5% of the portfolio to be in gold and are now advocating more for digital gold options as a more rewarding bet.