NEW DELHI: Gold, which was a major asset in 2020, has corrected around 16% since August 7, 2020, when it closed at a high of ₹55,922 on the MCX. Investors, who bought the fund in the latter part of the rally, may be wondering if they should leave.
Yellow metal prices are falling further, as it loses its safe haven claim with more covid-19 vaccines being licensed worldwide.
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We asked experts what they think about the recent correction in gold and whether investors should use the dip as a buying opportunity or time to cut their holdings?
Surendra Mehta, National Secretary of the Indian Bullion and Jewelers Association (IBJA)
There are a couple of reasons for the recent correction in gold prices. The U.S. Dollar index has strengthened against major currencies. The US Dollar is negatively associated with gold. So as demand for the US Dollar goes up, the price of the yellow metal will come under pressure. Also, U.S. bond yields have risen causing a correction in gold prices. In addition to this, people are looking to invest in more risky assets such as equities and cryptocurrencies. However, I feel that this correction tends to be short-lived and people should use this as an opportunity to collect gold. The current accumulation over assets such as allowances is liquidity driven and is unlikely to last long. If equity markets are right, people will get into gold again because it is a safe haven asset. Also, the U.S. is expected to unveil another stimulus package anytime soon that could push gold prices higher. I feel that gold prices could once again hit a high of $ 1960 per ounce in the next 3-4 months which is around $ 150 above the normal level.
Chirag Mehta, Senior Asset Manager, other investments, Quantum Mutual Fund
The main reason for the correction in gold prices is the sharp increase in the yield of U.S. benchmark bonds. The yield of the 10-year benchmark bond has moved up significantly and surprised the market. After starting at around 0.6% last year in August, it has now doubled to 1.37%. Therefore, that has led to a decline in gold prices as rising production means rising interest rates. But I think that it will not last, because low yields are needed to recover and support the debt that we have today, so central banks will graduate in case yields rise any further. This will support the yellow metal. In addition to this central banks will continue to negotiate currencies by helping the government to fund further incentives to support growth that benefits the gold.
Navneet Damani, VP, Product Research, Motilal Oswal Financial Services Ltd.
The year was marred by the pandemic that led to economic constraints and fiscal stimulus measures, strengthening the attractiveness of the precious metal, as a safe investment in the harbor. In addition to vaccine renewals, the duty cuts recently announced by the Government of India have also damaged prices. Although, foundations mentioned above still create a solid floor for metal prices. Gold prices have stabilized over the past few months and have recently corrected below $ 1800 on the COMEX where we are comfortable buying for a moderately short view focusing on new living standards. $ 2150. On the domestic side, post-budget price correction is a good way to re-enter for an upside towards new highs of Rs.56,500 and above over the next 6-12 months.
While experts remain optimistic about gold prices going forward, gold is certainly contributing to the diversification of the portfolio. Designers advise people to have around 7-10% of their package in gold. If you have lower satisfaction use this as an opportunity to add more gold to your portfolio.