Worst could be over for gold, for now

Mumbai: Should investors buy gold, which recently plunged to a multi-month low of 46,611 per 10 gm?

Analysts have said that so long as gold holds above the central technical pivot of 47,500, chances of re-testing the seven-month low of 46,611 hit on commodity bourse

looks unlikely. The generic contract on MCX mimics the spot gold rate.

Analysts recommend buying gold ETFs or sovereign gold bonds to cash in on an anticipated 1,000-plus movement in the short term from Tuesday’s intraday level of 48,118.

“So long as gold holds above the weekly central pivot of 47,568, it could test 49,000-plus levels this month itself,” said Vishal Wagh, research head at Bonanza Portfolio.

gold

Gold has underperformed most other assets since testing a record high of 56,191 per 10 gm on August 7 last year. It fell to 46,611 on February 4 due to a global selloff and partly due to an effective budgetary cut in import duty from 12.5 per cent to 10 per cent, inclusive of an Agri cess.

The correction from the high was driven by greater investments into global equities from a global debt selloff, especially in the US, amid the Covid-induced slowdown, observed KN Dey, managing partner at United Financial Consultants.

However, large scale bond selloffs would be tempered by low interest rates globally to enable economies cope with the Covid-induced slowdown.

“It looks unlikely that financial regulators in the US and emerging markets, like India, would allow yields to harden substantially from current levels, obviating huge selloffs in bonds,” said Dey. “This could help gold.”

However, technical analyst Rajesh Palviya of Axis Securities cautioned of a trend reversal again if the metal tested 47,500.

Sriram Iyer, senior research analyst at Reliance Securities, said a “decisive” break of a key resistance at 48,500 could enable the metal to retest the 50,000 mark. “For now at least, the worst seems behind us,” said Iyer.

Some of the investment avenues are via gold ETFs, like Nippon Gold ETF, SBI Gold Fund and Aditya Birla Sun Life Gold ETF. Investor fancy is also being drawn to sovereign gold bonds (SGBs), which were launched in 2015.

Some investors find SGBs a better option than ETFs as the former entails an interest payout of 2.5 per cent annually on the nominal value at subscription. This compares favourably against a good expense ratio of 0.5-0.75 per cent on ETF. However, unlike in ETFs, the SGB has a minimum lock-in of five years. Although the bonds are traded on the NSE, the liquidity is very low.

The quantity of outstanding SGBs is at 58.86 tonnes, RBI data show.

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