Gold Hits A Rough Patch. Will The Yellow Metal Continue To Shine?

By Anagh Pal

Though it has not been ascertained by historians, it is believed that gold was first discovered around 2450 BC in Egypt. But even today gold plays an important part not only as jewelry but also as an important investment. Gold prices rose over 13 per cent in 2023 and one of the main reasons behind it was concerns about a global economic slowdown. Gold has always been treated as a safe haven asset because it has historically performed well during uncertain economic conditions and volatile markets. 

The Sharp Fall 
However, gold prices are down more than 4 per cent from their all-time high of Rs 73,958 and currently trading around Rs 71,000 per 10 gm. "The price correction over the past three week's was initially triggered by the U.S. Fed official's comments on sticky inflation that led to trimming down on bets for rate cuts any time soon, pushing the U.S. dollar and treasury yields higher," says Pranav Mer, Vice President, Equity Brokerage Group, Commodity and Currency Research at JM Financial Services. 

Adding to that was profit booking from a steep rally from above 63,000 to an all-time high - a gain of more than 17 per cent. The ETF investors too have been on the sell-side in the international market with holdings of major ETF's witnessing liquidation. The easing of the Middle-Eastern tensions and a dip in oil prices too are key supportive factors.

The Impact Of Macroeconomic Factors 
Macroeconomic factors are key to the next price move. The crucial ones to watch out for will be the incoming economic data from the U.S. over the next couple of months, and any signs of cooling inflation may lead to rising bets for rate cuts in September. 

"However, if inflation stays sticky around current levels - the rate cuts may be further delayed. The recent data from the U.S. have shown signs of a slowdown in economic activity, while the labour market to has shown signs of weakening in the month of April - if this slowdown continues, then we are poised for an early rate cut. Similar will be the situation with other economies around the world," says Ver.

What Is Next For Gold 
Gold surged 18 per cent between March 1 and April 12, rising around $400 and hitting new all-time highs of $2,448 on escalating Middle East tensions, the Chinese gold rush, record purchases by central banks, concerns over sticky inflation, soaring US government debt, and continued fiat debasement. 

Here, the Chinese gold rush deserves a special mention. With other investment options not showing much promise, especially with the real estate sector in the crisis, investors have turned to gold. Further, the Chinese Central Bank has kept on adding to its gold reserves. In fact, not just China, according to a report by the World Gold Council, Q1 2024 saw no let-up in the pace of central bank gold buying, with 290 tons (net) being added to official holdings. 

"It is forecasted that gold prices will be trading 10 per cent higher to around $2550 (Rs 76,000) from the current levels by the next year, as the same factors will continue to support prices," says Prithviraj Kothari, Managing Director at RiddiSiddhi Bullions, which provides wholesale and retail level bullion. 

Should You Buy? 
Experts suggest that gold should constitute about 10 per cent of one's portfolio. 

According to Sachin Kothari, Director at Augmont Gold For All, an app to buy, sell, or store gold or silver, "Gold prices are expected to rise higher going forward, so those who have brought gold earlier can hold. And those who missed the earlier rally can look around to buy more gold on dips this month." 

Agrees Mer,"The long-term trend is gold remains positive and buying at corrections, adding more in a staggered manner is advised. As per technical charts, strong support holds at Rs 68,000 (which is a potential trend-changing level as well). So any dip of 2-3 per cent from current levels, it will be the ideal level to start accumulating." 

So, the future looks promising for gold. After all, it can be a true friend when the times are bad.