This immediate fall in gold prices may worry investors as it comes exactly after gold posted double digit gains in 2022. Read this to understand if it will still add glitter to the investment portfolio
Gold prices in India are trading at 1-month low level. On the Multi Commodity Exchange (MCX) India, the yellow metal slipped below Rs 56,000 per 10 gm level on Friday. Globally too, the prices of the yellow metal hit a 1-month low of $1835. Spot gold was down 0.3 percent at $1,832.42 per ounce at 0051 GMT in the international market.
This sudden fall may worry investors as it comes exactly after gold posted double digit gains in 2022. The yellow metal also recorded over 3 percent gains in the month of January 2023.
(A look at gold prices in the last one year. Source: WGC)
Key reasons for the immediate fall
Experts say that this is the result of the economic data in the US – the PPI data – a key inflation metric, rose in January (MoM).
Back home too, the inflation has suddenly shot up vindicating the Reserve Bank of India’s (RBI’s) latest rate hike, also sparking concerns that the central bank may not pause at the current level,” said Colin Shah, MD at Kama Jewelry.
Notably, RBI has been hiking interest rates at every Monetary Policy Committee (MPC) meeting since May. There have been six straight rate hikes so far, resulting in a total repo rate hike of 250 bps.
The yellow metal is considered an inflation hedge, yet rising interest rates increase the opportunity cost of holding the non-yielding asset.
The way forward
From a one-year perspective, Shah said that he is expecting gold prices to recover as inflation eases, and the central bank pauses on rates. MCX gold may trade in the range of Rs 56,800- Rs 57,200.
“Internationally, it may be around $1960-80 by the end of the calendar year,” Shah predicted.
A note from Emkay Wealth Management, the wealth management and advisory arm of Emkay Global Financial Services, also suggests that the prices for the yellow metal are poised to open a new chapter.
This means the sudden fall should be considered a brief one.
If we look at the dollar index, it is is currently in a revival mode towards 103-106. This could lead to some dips in gold prices. However, these may also be the opportunities to initiate fresh exposure to gold, Emkay Wealth Management said.
“The general expectation that there will be a slowdown in economic activity in the major economies also will also be helping gold though the high inflation never propelled gold to higher levels,” it said.
Investment strategy
Short term exposure with a 1-year time horizon could be taken through gold funds and long term through Sovereign Gold Bonds (SGBs), according to Emkay Wealth Management.
(Edited by : C H Unnikrishnan)
