Gold prices are currently down about ₹12,000 from August highs
The fall in gold prices in the domestic market is in line with the international market prices
Following strong gains in 2020, gold has been reeling under pressure so far this year amid rising US bond yields and a rally in equity markets. On MCX, gold futures ended at near 10-month lows of ₹44640 on Friday, after sliding more ₹1000 during the week. From all-time highs of ₹56,200, hit in August last year, the precious metal is down more than 20% or ₹11,500.
Many analysts say that though gold's near-term trend look weak, investors can start accumulating given the sharp fall from highs.
“After having a dream run in 2020, the yellow metal has been falling for the past few months losing more than 20% in value from the highs witnessed in August 2020. The fall in gold prices in the domestic market is in line with the international market prices due to the rising US treasury yields that make holding gold more expensive. The strengthening of the dollar also makes gold buying expensive. Heavy outflows from gold ETFs are also one of the reasons for the softness in gold prices," said Nish Bhatt, Founder & CEO, Millwood Kane International.
"We expect gold prices to remain sideways in the short-term as vaccination drive across the globe picks up the pace which will lead to full normalcy in economic activities. The expectation of a rise in inflation due to excess liquidity globally may help gold prices in the medium to long-term," he added.
In global markets, gold has sank to nine-month lows to below $1,700 an ounce as investors sold the precious metal to reduce the opportunity cost of holding the non-yielding asset.
Debajit Saha, lead metals analyst at Refinitiv, said the broader downtrend for gold is not over yet. "We expect the yellow metal to find decent support around $1685/oz level. It will try to scale up $1800 mark and may experience the selling pressure once again around that level. The broader downtrend for gold is not over and we expect it to touch $1605 by end of June or early July," he said.
Since gold has retraced from its highs, investors can look to allocate a small portion of their portfolio towards gold for adequate diversification, says Nirali Shah, Head of Equity Research, Samco Securities.
Jigar Trivedi, research analyst for commodities at Anand Rathi Shares, said, "Positionally, for investors these are the best levels to start accumulation as gold has already fallen by 21% from an all-time high of ₹56,200."
"The sentiment is negative amid withdrawals from investment demand. Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust fell for the 13th straight session. The yellow metal is likely to stay under pressure since sentiment is weak in bullion space amid sharp rise in dollar index and bond yields in the US. MCX gold may find support near Rs. 43,900-43,600 in a short term," he added.
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