Gold prices fell to their lowest in nearly three months and headed for their worst week since end-November, as recent strength in U.S. Treasury yields dented the non-yielding metal's appeal.
"We expect this trend to continue as investors appreciate the risk-reducing, return-enhancing role gold plays in an investment portfolio and maintain their gold allocations at 10-15 per cent," Mehta said.
The price of gold has fallen by over Rs 10,000 per 10 gram in the recent past. From a high of about Rs 56,000 per 10 gram seen in August 2020, the price of the yellow metal is currently hovering around Rs 46,000/ 10 gram. Since January, the gold price has dropped by almost Rs 4,000. Is the promising growth seen earlier seems to be fading away or is gold set for a rebound? Amidst several fast changing economic and political factors, the answer may not be as straightforward as it looks. For retail investors it’s always better to be diversified in gold through Gold ETFs or Sovereign Gold Bonds to meet their long term goals.
But, what has changed lately that is having an impact on gold prices? Of the many other factors, rising US yield is one of the factors that is keeping the demand for gold low. If interest rates rise as witnessed in rising yields, the demand for gold falls as it not an interest yielding investment. “Gold prices have slipped below the crucial Rs 46,000 per10 gm level, to hit an 8-month low. The rise in the US Treasury yield and stronger dollar, optimism of a larger economic stimulus package, and the vaccination drive have led to downside pressure on gold prices,” says Nish Bhatt, Founder & CEO, Millwood Kane International, an investment consulting firm.
If the fall in gold price is due to the rising yield, it might remain as an factors in the short-medium term. In future, some other factors will be at play thus impacting the gold price. “The rising treasury yield is indicative of a recovery in the US economy. The yellow metal has also lost investor’s interest as the vaccination drive picks up pace, new cases are under worldwide. Gold prices in India have lost over Rs 10,000/10gm or 18 per cent from its highs witnessed in August 2020. Going forward risk of a second wave of cases, easy liquidity, global economic recovery will guide gold prices,” adds Bhatt.
Keeping an eye on the US yields will be crucial in the short term. There could be more weakness in the gold price if the yields remains buoyant in the coming weeks. “Navneet Damani, VP – Commodities Research, Motilal Oswal Financial Services says, “Gold prices fell to their lowest in nearly three months and headed for their worst week since end-November, as recent strength in U.S. Treasury yields dented the non-yielding metal’s appeal. Benchmark U.S. Treasury yields edged higher, having hit a near one-year peak earlier in the week. All updates regarding the Covid-19 stimulus bill and vaccine for Covid-19 and the new variant is impacting the market sentiment.”
The retail investors may look at adding some more gold in their portfolio in the current price range if the goal is long term. “Broader range on COMEX could be between $1755- 1782 and on the domestic front prices could hover in the range of Rs 45,700- 46,300.” says Damani. The gold EFT and SGB remains the best move forward to accumulate gold within overall exposure of about 5 to 10 per cent in one’s portfolio.