Home >Markets >Commodities >Gold prices down 8,000 from record highs. Should you start buying now?
On MCX, gold prices today fell to  ₹48,635 at day's low
On MCX, gold prices today fell to 48,635 at day's low

Gold prices down 8,000 from record highs. Should you start buying now?

  • Analysts expect gold to find support at lower levels
  • Gold prices have been under pressure with recovery in US long term bond yields

After posting gains of over 25% in 2020, gold prices have suffered wild swings from the start of this year. After hitting a high of 51,800 per 10 gram last Tuesday, gold futures on MCX fell to 48,635 at day's low today. On Friday, gold had tumbled 2,050 per 10 gram while silver had tanked 6,100 per kg. Last August, gold had hit a record high of 56,200 per 10 gram.

Analysts have attributed the recent volatility in gold prices to rising US bond yields that increase the holding cost of non-yielding assets like gold. But they expect gold to fund support at levels.

“Gold and silver have fallen amid steady US dollar index despite disappointing US non-farm payrolls data. The US 10-year bond yield has also risen to March highs reflecting optimism about the US economy and increased inflation expectations. Also weighing on price is further progress on the vaccine front as the UK approved Moderna’s mRNA Covid-19 vaccine for emergency use," said Ravindra Rao, VP- Head Commodity Research at Kotak Securities.

Mr Rao however see gold finding buying support at lower levels. "Although the short term moves remain choppy due to rising bond yields in the US on back of a smooth transition of power, higher future inflationary concerns might trigger a re-emergence of buying in the precious metal at lower levels," he said.

US President-elect Joe Biden, who is scheduled to take office on January 20, on Friday called for trillions of dollars in immediate further aid, including increased direct payments, after a surge in coronavirus cases caused U.S. payrolls to drop for the first time since April. He will lay out his proposals on Thursday.

HDFC Securities expects the weakness in gold prices to be short-lived. "Gold prices traded under pressure with recovery in US long term bond yields. The 10 year US treasury yields hit the March 2020 highs which also triggered short unwinding in dollar. The traders and investors rushed to book profits in gold on risk on sentiments with buying in riskier assets," the brokerage said in a note.

"Gold prices declined with positive investment sentiments with strong rally in equity indices. The expectations of higher stimulus may eventually support gold prices with weakness in dollar. The current selling in gold prices is expected to be short lived with bullish long term trend," it said. (With Agency Inputs)

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