Highlights:
- Gold gained more than 25% in 2020 despite a global pandemic
- In 2021, Gold is taking hard hits as it has already lost ₹ 8,000 from its record highs
- Is investing in Gold right now the sound way to go?
In 2020, Gold posted gains of more than 25% despite the global pandemic, however, from the start of 2021, gold prices have take huge blows. Last Tuesday, Gold prices hit a high of ₹ 51,800 per 10 gram, and the gold futures on MCX fell to ₹ 48,635 at day’s low today.
On Friday, gold had again dropped by ₹ 2,050 per 10 gram while silver had taken a nosedive as it tanked ₹ 6,100 per kg. In August 2019, gold had hit a record high of ₹ 56,200 per 10 gram.
The recent volatility in the gold prices has been attributed to the increase in US bonds yields by the analysts. It is said that these yields increase the holding cost of any non-yielding assets which includes gold.
Having said this, they expect gold to fund support at levels.
Ravindra Roa, Vice President- Head Commodity Research at Kotak Securities said, “Gold and silver have fallen amid steady US dollar index despite disappointing US non-farm payrolls data.
“The US 10-year bond yield has also risen to March highs reflecting optimism about the US economy and increased inflation expectations.
“Also weighing on price is further progress on the vaccine front as the UK approved Moderna’s mRNA Covid-19 vaccine for emergency use,” he said.
However, Rao sees gold finding buying support at lower levels.
Rao said, “Although the short term moves remain choppy due to rising bond yields in the US on back of a smooth transition of power, higher future inflationary concerns might trigger a re-emergence of buying in the precious metal at lower levels”.
Joe Biden, US President-elect, who will be taking over the office on the 20th of January, on Friday called for trillions of dollars in immediate further aid which includes the increased direct payments, after an increase in the cases of the novel Coronavirus which caused the U.S. payrolls to decrease for the first time since April.
Joe Biden will lay out his proposals on Thursday.
HDFC Securities is expecting the weakness of the gold prices to end soon.
In a note, the brokerage firm said, “Gold prices traded under pressure with recovery in US long term bond yields. The 10 year US treasury yields hit the March 2020 highs which also triggered short unwinding in dollar.
“The traders and investors rushed to book profits in gold on risk on sentiments with buying in riskier assets”.
HDFC Securities also said, “Gold prices declined with positive investment sentiments with strong rally in equity indices. The expectations of higher stimulus may eventually support gold prices with weakness in dollar,” and added, “The current selling in gold prices is expected to be short lived with bullish long term trend”.
