Hold, don’t horde, gold: IIFL view

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Gold has dropped 21% from record highs of Rs 56,191 per 10 gm in August 2020 when investors latched on to this safe-heaven-investment in the wake of surging Covid-19 cases worldwide. On  March 10, 2021, gold was down to Rs 44,151 per 10 gm – lower than the price offered in the last tranche of Sovereign Gold Bonds.

Will this downward spiral continue and what should your investment strategy be in this bullion market? Read on.

Reasons for correction in gold prices

According to Rupak De, Senior Research Analyst at IIFL, three reasons are pushing prices down – optimism on Covid vaccine roll out, recovery in dollar index and rising bond yields.

“Coronavirus single handedly pushed the Gold price higher and gold made record highs in 2020. Now with the rollout of coronavirus vaccine, strengthening of dollar index and rising bond yields in the US are creating some pain for the gold holder,” he said.

Further correction or volatility?

Analysing the trend line, gold  has been making lows and then moving higher. On the higher end, it is facing selling pressures. De said, “There will be some intermediate bounds in the gold price. For the short term, Rs 44,000 is expected to act as a support. As long as it is held decisively, we may see some bounce towards Rs 47,000 in the short term.”

Earlier, Anuj Gupta, deputy vice president, commodity and currency research at Angel Broking had said, “Traders can go for ‘buy’ in gold at Rs 44,500 levels with the stop-loss of Rs 44,200 levels and for the target of Rs 45,300 levels.”

Should you buy or hold?

Rupak De advises this is definitely not the time to sell or even buy aggressively. But keeping Gold in your portfolio continues to be a sound allocation strategy to beat inflation. “This is not the price to buy aggressive, but we think from a long term perspective, you should always have gold in your portfolio because Gold has the ability to beat inflation,” he said.