Gold down 20% in technical bear market: Should investors buy yellow metal now?

Things changed in 2021 as the rollout of the new vaccine and the rise in US Bond Yields took some sheen away from the yellow metal across the globe.

LBMA Gold Spot has fallen from an all-time high of $2,075 it hit in August 2020 to a low of $1,676 in the first week of March 2021. Prices have corrected by 19.23 percent.

“Since the roll out of vaccines in the US in 2021, the intensity of fall in gold has increased as investors look to other avenues of investment as risk appetite improved in the financial markets,” Sriram Iyer, Senior Research Analyst at Reliance Securities, told Moneycontrol.

“One of the avenues was the US 10-year benchmark yields. The yields have gradually risen from the lows of 0.3 percent made at the peak of the pandemic in March and recently to a high of 1.62 percent in the first week of March 2021. Why did they move to yields? This is because the yields are low-risk investments which gives you interest, unlike the non-yielding gold,” he said.

Iyer further added that with the improvement in the global economy and the markets no longer needing support, global central banks across the world can exit qualitative easing (QE) and let the economy run on its own with higher interest rates.

Gold is considered as a defensive play when volatility in the stock market increases. India Gold is likely to find support near Rs 43,000 per 10 gm. A further fall from current levels is possible and investors could use this to accumulate digital gold instead of physical gold from an investment perspective.

“Indian gold prices have fallen around 21 percent from its recent peak made last year. However, gold prices in the international markets have fallen around 20 percent. The rising dollar index and 10-year bond yield in the United States are driving gold prices,” Manoj Jain, Director (Head-Commodity & Currency Research) at Prithvi Finmart told Moneycontrol.

“Faster recovery of the global economy from the pandemic and the rollout of COVID-19 vaccine also pushed gold prices lower. Technically, gold is in a short-term bear market and it could find support around $1,650 per troy ounce, and, in rupee terms, 43,000 per 10 gram in the domestic market,” he said.

Jain further added that as far as long-term investment is concerned, it's a good time to accumulate gold in tranches. We recommend digital gold from an investment perspective.

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What should investors do?

Here is what experts have to advise investors about what they should do with the yellow metal from a long- term perspective:

Ravindra Rao, VP- Head Commodity Research, Kotak Securities

For the past few weeks, bond yields have been rising on the expectation that central bankers might raise interest rates due to inflationary pressures. This prompted investors to move out of gold as indicated by investment demand.

On the domestic front, gold prices have fallen by more than 20 percent from the peak. This is a decent correction after two straight years of solid returns. Hence, we feel this is a good level to enter from an investment perspective.

Although we don’t rule out any further fall, one should not time the market and should start investing in a staggered way. From an investment perspective, ETF or funds would be a better alternative as compared to physical gold.

Manoj Jain, Director (Head-Commodity & Currency Research), Prithvi Finmart

As far as long-term investment is concerned, it’s a good time to accumulate gold in tranches. We recommend digital gold from an investment perspective.

For small investors, ETF is a good option, and for medium to long-term investors, sovereign gold bond is good. It provides 2.5 percent interest and long-term capital gains are also tax-free on maturity.

For very short-term traders, as soon as gold is trading below the 45,550 levels, its sell rise. We expect, in the short term, gold could test 43,000 before starting a fresh rally.

Sriram Iyer, Senior Research Analyst, Reliance Securities

From the fundamental perspective, markets are too volatile, and one could remain away in the short term. However, traders who do think long-term can start buying in the forward month contracts on MCX or look to other avenues to trade like ETF, SGBs, or physical.

For long-term investment, investors can accumulate gold near the 44,000, 39,900, 36,850, and 34,000 levels.

Strategy for Short-Term Traders: Buy MCX Gold near 44,500-44,450 for the target of 46,200-47,700 levels.

Strategy for Medium-Term Traders: Sell MCX Gold near 48,000-48,900 for the target of 44,000-39,900 levels.

Strategy for Long-Term Traders: Buy MCX Gold near 36,850-36,500 for the target of  51,400-57,900 levels.

Hareesh V, Head of Commodities, Geojit Financial Services

MCX gold corrected more than 21 percent while London spot prices corrected 17 percent from its record highs. Optimism over global economy, strong US dollar and investor demand for risky assets like equities pushed gold prices down.

The short to medium-term outlook of gold is on the weaker side. As long as prices stay below $1,760 an ounce, on-going negative sentiments may continue in the metal.

Since the momentum is on the weaker side, the ideal strategy is to stay away from precious metals and wait for more correction in prices.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.