Time to invest in gold as prices fall: Experts

Projection of positive global growth by IMF pushed the global equity markets higher and eroded safe bets for bullion. Further, improving economic conditions following roll out of coronavirus vaccine also dampened the safe-haven appeal of bullion

Mumbai: Even as gold prices have fallen drastically, experts say it is the right time for investing in the yellow metal. For investment, one can choose any mode, ranging between ETF, coins or even sovereign gold bond.

Gold prices have fallen by more than Rs1,000 per gram from all-time high made in August 2020 due to various factors. First, elevated US Treasury yields that had crossed the mark of 1.6 in the recent past, hammered non-yielding bullion's appeal as it pays no interest and raises opportunity cost for holding it.

Secondly, projection of positive global growth by International Monetary Fund (IMF) has pushed the global equity markets higher and eroded safe bets for bullion. Thirdly, improving economic conditions following the roll-out of coronavirus vaccine also dampened the safe-haven appeal of bullion. Union Budget saw the net reduction in import duty by 2.19 per cent, which juxtaposed with a 42 per cent rise in gold prices since July 2019. "Tax cuts soften price increase but are not necessarily a big driver of demand unless the cut is steep or is accompanied by a sharp drop in domestic prices due to other factors," said Somasundaram PR, MD India, World Gold Council (WGC).

"However, recent risk-off sentiments may revive safe-haven bets for the bullion along with upcoming announcements of the further stimulus measures by the newly elected US government may support Gold as perfect hedge against possible inflation," says Mohit Agarwal, commodity & currency analyst, ICICI direct. MCX gold prices have an immediate strong support around Rs45,000 level. As long as it sustains above this level, we may see a bounce towards Rs 48,000 level in the coming weeks, he added.

Long term investors, he went on, should consider this fall as right time to invest in gold. One should consider investing in gold in the form of ETF, coins and Sovereign Gold Bond.

However, some analysts feel otherwise. "Although gold prices have tumbled recently in the wake of rising sovereign yields. We do not think yields will rise given the fact that governments do not favour higher yields on their accumulated gigantic debt," says Hitesh Jain, lead analyst-institutional equities, Yes Securities. There is a prevalent divide between markets and central banks, wherein markets are pricing higher inflation and growth, while central banks remain accommodative and dovish.

We assume, Jain said, that central banks will eventually rein in the yields with their asset purchases and also help their respective governments in keeping the borrowing costs low. On gold price trajectory, we still remain bullish considering the unprecedented government stimulus, strengthened central banks' balance sheets and burgeoning sovereign debt, he added. A structural decline in USD against the basket of currencies will also underpin the value of an alternative currency like gold, it is said.