Gold prices fall by over ₹11,000. Is it safe to invest in the Gold?

Increase in US bonds yield and its impact on gold prices

The rise in US dollar and treasury yields, following positive comments from a US Federal Reserve official, and upbeat manufacturing data in the country also contributed to the slide in gold prices.

Surendra Mehta, the national secretary of the India Bullion and Jewellers Association (IBJA), has said that the biggest reason for the fall in gold prices was the dollar strengthening against other big currencies. The US dollar index has strengthened against major currencies. The US dollar and gold are negatively correlated, therefore as demand for the American currency goes up, the price of the yellow metal comes under pressure. US bond yields have also risen causing a correction in gold prices. Continuing the downward slide, gold prices fell for the fifth day in India on Wednesday. On the Multi Commodity Exchange (MCX), gold futures for April contracts were trading 0.69 per cent lower at Rs 46,575 per 10 gram, while silver contracts for March were trading 0.97 per cent lower at Rs 68,700 per kg.

The announcement of cut in customs duty on gold in the Union Budget, coupled with other factors, has brought the price of the precious metal to the lowest level in about eight months. In August, gold prices had touched a record high of about Rs 56,200 per 10 gram on MCX.

Also read: Budget 2021: Gold customs duty cut to reduce not just prices but also smuggling

The rise in US dollar and treasury yields, following positive comments from a US Federal Reserve official, and upbeat manufacturing data in the country also contributed to the slide in gold prices. Besides, optimism about $1.9 billion stimulus package by Joe Biden administration led to the yellow metal losing some appeal.

While the dollar index rose 0.23 per cent to 90.72 on Wednesday, spot gold was trading 0.49 per cent lower at $1,785.67 per ounce globally.

The COVID-19 pandemic and lockdowns had led to a surge in gold prices globally. However, a decrease in infections, opening up of economies, increase in vaccination pace and the surge in equities market have decreased the appeal of the yellow metal, as per analysts.

Investors can earn strong profits from gold at current prices

Mehta said that after the beginning of the vaccination drive against the coronavirus disease and a spurt in economic activity, people are now turning to more risky investment options for stronger profits. These include options such as equity and cryptocurrency. People are also looking to invest in riskier assets such as equities and cryptocurrencies. However, Mehta feels this correction is likely to be short-lived and people should use this as an opportunity to bet on e gold. The current rally across assets such as equities is powered by liquidity and is unlikely to last long. If equity markets correct, people will again get into gold as it is a safe haven asset. Also, the US is expected to announce a further stimulus package anytime soon which may drive gold prices higher. He feels that gold prices may again touch a high of $1960 per ounce in the next 3-4 months that is around $150 above its current level.

Gold can touch new levels in 2021

According to experts, gold prices are set to increase in 2021. They predict that once the price of gold starts increasing, it will cross the level of ₹62,000 per 10 gram.

Gold prices closed at the highest level of Rs. 57,008 per 10 gram on August 7, 2020, in the Delhi bullion market and since then, the price of the yellow metal has fallen by ₹11,409 till Friday 26, 2021. Silver was at ₹77,840 per kg on August 7, 2020, which has gone down by ₹10,421 to ₹67,419 on Friday. The fall in prices of gold and silver has left investors wondering whether they should invest in the precious metals or sell or hold what they have. Some also want to know whether it will be safe to invest in gold at current prices.