Planning to buy gold? It might be right time as experts see upside in prices

Uncertain stock markets, the low-interest-rate regime in most of the economies, easy liquidity and a weak dollar may continue to support the yellow metal in coming months.

Hyderabad: The steep correction in domestic gold prices at the start of the week may attract some fresh buying in the yellow metal as the festive season is just around the corner and experts continue to see upside potential in prices in the near-to-medium term.

On Monday, gold prices in India fell below the Rs 50,000 per 10 gm mark after Pfizer said that the initial data shows that its COVID-19 vaccine is 90% effective in preventing infection. However, in the next session, gold recovered to touch Rs 50,600 levels in intra-day trade.

Prathamesh Mallya, Assistant Vice-President (Research), Commodities and Currencies at Angel Broking, said: “The recent fall in gold prices has given the opportunity for those who missed the (earlier) rally… bargain-hunting at lower levels will ensure that gold will have a smooth ride in the months ahead.”

“Gold prices have given double-digit returns in 2020 year-to-date, and the uncertain global markets, the low-interest-rate regime in most of the economies, and easy liquidity are the push factors that will further boost gold prices in the months ahead,” he added.

Mallya also noted that now since the outcome of the US elections is clear with Joe Biden taking up the presidency, the uncertainty has declined drastically in markets. “In India, by next Diwali, gold prices might move higher towards Rs 56,000 per 10 gm mark,” he said.

Professor Arvind Sahay, chairman of the India Gold Policy Centre (IGPC) at IIM-Ahmedabad, a research arm of the World Gold Council (WGC), also said that the dollar weakness may continue to support gold prices internationally.

“The Fed's commitment to keeping interest rates near zero for at least 2 to 3 years and willingness to buy long-term yields shows that dollar index continues its downward spiral, thereby helping gold hold higher,” said Sahay.

However, he added that domestic gold prices may not see the all-time highs seen in August this year immediately due to a stronger rupee.

“The scope for economic course correction in the US is very limited that can manage the value of the dollar. That being said dollar’s strength is relative to Euro or Sterling or Yen, and neither of these currencies is in any major turnaround. This would, in turn, mean that the scope for the rupee to depreciate is lower. Thus, even if gold prices in the dollar see a continuing uptrend, in domestic terms, it would require gold to surge past record highs for the price in India to even get near the recent high,” noted Sahay.

“Gold price volatility in the rupee terms till mid-January will be limited to a 4-5% swing either ways, due to the rupee play,” added Sahay.

Mallya also said that some volatility may not be ruled out for both gold and silver in coming months.

“Combination of potent forces of tightening of monetary policy by major central banks, successful vaccine and its supply globally, and uncertainty with regards to US-China trade which might ease now taking into consideration the new president-elect in the US can prove to be some of the push factors for gold prices to head lower,” added Mallya.