Akshaya Tritiya: Gold on the MCX for June contract has been falling continuously for four sessions. This is a good opportunity to buy gold as the long term fundamental story is well intact
By Jigar Trivedi
The word Akshayya means never-ending in the sense of health, wealth, prosperity, hope, joy, positivity & success. This festival is celebrated by Hindus and Jains. Akshaya Tritiya is considered highly auspicious in many regions of India for new ventures, marriages and expensive investments like house & gold. Akshaya Tritiya is synonymous with good luck and success. There is a tradition of buying gold on this day as it is believed that buying the yellow metal on this occasion brings prosperity and more wealth in one’s life. It is also believed that gold, purchased on this day, will never diminish and would continue to grow or appreciate.
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Today we celebrate Akshaya Tritiya. Those who are planning to buy gold for long term investment, there is good news. Gold on the MCX for June contract has been falling continuously for four sessions. This is a good opportunity to buy gold as the long term fundamental story is well intact. In the short term gold may dip due to rebound in the US dollar, but mid-term and long terms outlook is still bullish. Hence it is the best time to keep accumulating gold on every dip.
The base is strong due to a number of fundamental reasons. Even after a whopping 25% return in 2019 and 28% return in 2020, we expect the strong fundamental backdrop to support the rally in MCX Gold. Rising inflation should be favorable for the yellow metal, implying investment demand for gold will likely increase in the coming months. We need to cautiously watch the dollar since overall trajectory is downward, higher US treasury Yields, exchange-traded fund (ETF) demand picking up and falling global interest rates.
Rising coronavirus cases especially, in India, Japan & Indonesia, continuous liquidity support by the central banks like PBoC, Fed, BoJ & ECB, rising inflationary expectations, economies growing on the back of debt, trade wars between Australia/EU/US and China, and a few other factors continue to boost the sentiment and build a strong case for higher gold prices.
Tricky part is Covid-19 related lockdown restrictions in India as many parts of the country have imposed strict lockdowns and free movement is under severe punishment. The so called millennial generation might find other avenues of buying gold more attractive than a traditional one, for example buying a Sovereign Gold Bond, Digital Gold, ETF or MCX BullDex.
Overall, this Akshaya Tritiya, is a good time to go long in gold since price have corrected recently; having said this, the long term picture is still looking bullish for the yellow metal. We reiterate the target price for gold around Rs 49,000 per 10 gm and Rs 51,500 per 10 gm for this year and recommend accumulating on every dip. On the flip side, Rs 45,500 per 10gm is a strong support.
(Jigar Trivedi is a Fundamental Research Analyst at Anand Rathi Shares and Stock Brokers. Views expressed are the author’s own. Please consult your financial advisor before investing.)