Buying gold and silver this Dhanteras? 5 things to know

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Updated: October 27, 2016 9:54:57 AM

Both, silver and gold prices have plunged over 5 per cent and 3 per cent in the past six months. Despite a fall, market experts are looking bullish on long term investment in these metals.

Gold priceBoth, silver and gold prices have plunged over 5 per cent and 3 per cent in the past six months. Despite a fall, market experts are looking bullish on long term investment in these metals. (Photo: AP)

Buying precious metals on Dhanteras and Diwali  is quite common in India as people consider this time as auspicious for investing in gold and silver .

Both, silver and gold prices have plunged over 5 per cent and 3 per cent in the past six months. Despite a fall, market experts are looking bullish on long term investment in these metals.

Here are five points to know more about gold and silver this festive season:

1) Of late, impacted by growing perception of US Federal Reserve hiking interest rates in December, gold prices plunged 3.4 per cent in the past six months. The metal fell from Rs 26,784 per 10 grams on May 6 to Rs 25,854 per 10 grams on November 6. Silver prices plunged 5.2 per cent to Rs 35,348 per kg during the same period.

Jayant Manglik, president, retail distribution, Religare Securities, said, “Gold and Silver prices have traded with a negative undertone in 2015 due to a weak rupee. After the recent drift in prices, gold is likely to stabilise and find major support at lower levels of around Rs 25,500 per ten grams where it becomes a good buying opportunity. A round figure of 29,000 would be the immediate target. Silver too should find support around Rs 34,400 per kg and a likely target will be Rs 39,000. Silver will be more volatile than gold and will work better for investors while gold will suit investors allocating a part of their portfolio to bullion.”

Continued investor outflows also hurt gold. SPDR Gold Trust, the top gold-backed exchange-traded fund, said its holdings fell to 680.11 tonnes on Wednesday – the lowest in six weeks.

2) There are some key factors that which drive gold prices. The most important one is the strength of the US Dollar versus a basket of major international currencies like the Euro, British Pound and Yen. A strong dollar equals weak gold prices – something which we have seen in the last several months and will continue to see now. Secondly, it is the interest rate scenario. Low global interest rates will lead to higher prices. Anticipation of an increase in the US Fed rate is presently putting pressure on dollar gold price. Third, is the fear of inflation which leads to increase in gold investment but given the global deflationary scenario it is not a factor today. Finally, it is the geopolitical scenario, there is relative peace and therefore gold is not really a needed safe haven. In India, we have the additional important factor of conversion of the US dollar versus rupee.

“Silver too broadly follows gold and may track it closely over large periods of time but immediate prices are also driven by base metal prices as it is extracted along with them. Physical demand for bullion makes a difference but not more than the other factors because excess demand is met by market sale of on-ground bullion by entities which hold bullion,” said Manglik.

3) On demand front, the outlook for the yellow metal seems to be improving. GFMS reported that physical gold demand during the third quarter of ongoing calendar year 2015 rose by 7 per cent on year-on-year basis, while demand for gold coins and bars jumped 26 per cent. Central bank purchases picked up as well, rising 13 per cent to 132 tonnes.

4) Market experts believe gold will remain under pressure for the next few more months. Naveen Mathur, associate director, commodities and currencies, Angel Broking, said, “Overall sentiments for gold are looking bearish and it will settle the ongoing calendar year in the range of Rs 26,000 – 26,500 per 10 gram”

Kishore Narne, associate director head, commodity and currency, Motilal Oswal Commodities seconds Mathur and said, “The nearterm outlook for both Gold and Silver has turned bearish after the recent Fed statement as markets have started factoring in a higher chance of a rate hike in December. Important macro-economic indicators like core inflation, wage growth and consumer spending in the US are encouraging and we believe that the Fed is on course to hike in December unless US data falters considerably from here on.”

5) For long term investors, Hitesh Jain, senior commodity analyst, IIFL, said, “We do not rule out short term downside in gold prices, weighed by relatively strong US dollar. However on a broader perspective, we infer that the yellow metal will be back in the reckoning amid a fragile global economic landscape and indecisive Fed. From the investment strategy perspective, if one is ready to weather the near term storm; it can prove to be a lucrative opportunity to put your money in the yellow metal.”

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