Rising bond yields and a surging dollar have put pressure on bullion prices. Investors are preferring the safety and yield of sovereign bonds than buying the yellow metal, which has long been regarded as a safe haven asset in times of rising inflation.
Gold is trading near Rs 44,500 per 10 gm level in the spot and futures market, down from the August 2020 high of Rs 56,000. One analyst said it could even move below Rs 40,000 in the worst-case scenario.
“There should be a deeper bottom for gold. The US treasury is again trading higher, and we expect more rise in that and the Dollar Index. The new level should be Rs 42,000, and that would be a good level to buy,” said Vandana Bharti, AVP for commodity research at SMC Global.
She said there could be a scenario when gold may fall below Rs 40,000. “Nobody is talking about it, but for a very brief period of time, we may see it happen. But people may not get the opportunity to encash it,” as there will be strong buying at that level, she said.
Gold last traded below the Rs 40,000 level was in October 2019. Since then, the trade war between the US and China and then the Covid pandemic led to a stupendous rally in the precious metal.
Other commentators have started seeing Bitcoin as the new gold and a better investment option. They include Russ Koesterich, a fund manager at Blackrock, who claims “gold’s ability to hedge against inflation has been somewhat exaggerated.”
Blackrock has already started investing in Bitcoin.
This goes against the typical case for holding the yellow metal in a multi-asset portfolio to balance out shifts in other holdings, especially equities. “Absent a strong view on a declining dollar, I would own less gold,” Koesterich wrote in the March 10 blog entry, adding that, “For those investors still looking for a hedge, one word: cash.”
But not everyone is selling gold right now. Some analysts believe the precious metal will move sideways for a while and could offer a great opportunity to accumulate. It will then see some appreciation over the next 12 months.
Ravindra Rao, VP- Head Commodity Research at Kotak Securities said $1,560-1,565 per ounce a month back should be an ideal bottom. “But to convincingly say that was the bottom, it should close above $1,750 internationally (Rs 45,500),” he said.
“Bond yield is raising hope that the US Fed will increase interest rates, which the US central bank says is not possible before 2023. So it’s just the optimism that is pulling yields higher. If that starts coming down, gold can rise,” Rao said.
He has a target of Rs 47,000-48,000 for the next 12 months.
Trading strategy for the week
Analysts say the short-term momentum has flipped and is now negative as the fast stochastic generated a crossover sell signal. “Traders should play a narrow range and initiate ‘sell’ near Rs 45,400 in the coming days. In this case, traders must follow the stop loss of Rs 45,800 for a target of Rs 44,400,” said Kshitij Purohit, Lead Commodities & Currency at CapitalVia Global.
