Precious metal counters have witnessed some action in the past fortnight. Gold prices crashed to a 14 month low of $1,677 per ounce which has been perceived as an opportunity by keen investors.
Of course, the price has seemingly stabilized and Gold currently trades at $1,780 levels on the US Comex. With the festival season such as Onam and Ganesha Chaturthi arriving soon there is rising interest in buying gold or investing in ETFs. But, do read the following factors which will make your decision an informed one.
1. Geopolitical Tensions in Afghanistan: The departure of the US army and the sudden rising of the Taliban in Afghanistan are geopolitical tensions which are likely to spur Gold prices further north. American army's invasion of Afghanistan and Iraq resulted in an uptick in Gold prices.
The murmurs of US invading Afghanistan in September 2001 caused US spot gold to cruise by $20 per ounce in that month. By May 2002, Gold prices cruised to $330 levels. Markets traded range-bound at upwards of $320 per ounce but touched $370 per ounce in the month of May 2003. This was when the US had achieved the invasion of Iraq. If you believe a development in Kabul cannot be as large a trigger as the Gulf wars of 1991, we would request you to read this story here. It is the five times when movement in Gold rates spooked investors. Gold price slipped by 17 percent just in one day thanks to what the Russians did.
2. Rising Delta Virus Strain: The delta virus strain is a major tension that has affected both US and Europe besides emerging markets of South East Asia. Covid related hospitalization and closure of business severely restricts buying sentiment. Covid related expenses and treatment also forces many towards distress selling of Gold. Covid hence affects the outlook of jewellers buying. However, a distress selling is considered an opportunity for institutional buyers. Institutional buyers include banks, apex banks and large entities. Since the deal size is in tons such an action generally moves the market forward.
3. Currency Fluctuations: The US Dollar Index has steadily remained elevated for the past six months. That, despite US raising budgets and keeping interest rates at near-zero. US Dollar appreciation will be a negative development for Gold. A weaker Rupee on the contrary means more costlier Gold. Investors are hence advised to keep an eye on the USD-INR equations prior to investment.
4. IPO Action: The average investor may feel like a kid inside a toy store. Thanks to availability of so many IPOs across the world. In India alone, nearly 90 IPOs are being planned until the end of the year. Successful Indian IPOs may raise the currency value which will make gold more affordable in INR terms. There is a probability that investors are likely to encash their Gold holdings enter into IPOs in the US as well. This may further pressurize Gold prices. However, the street has been murmuring that equity markets are at a high and stock valuations are at astronomical values. Any slip in equity markets is bound to be a gain for Gold price.
5. US-Fed Bond Buying Program & Inflation Concerns:
The US-Fed has been buying bonds as if there were no tomorrow. Apparently the apex bank had been shopping for $120 billion of bonds every month since the pandemic began to support the US economy. Bond buying programs generally tend to arrest interest rates not inflation. When the program commenced the idea was to support the economy and improve jobless numbers. Latest numbers indicated that the US government may have achieved in arresting unemployment numbers lower than even estimates. However, more jobs have resulted in soaring inflation. The latest minutes of discussion indicates that the US Fed was considering a revision in its bond-buying program. When and how is a question best answered by US Federal Chief Jerome Powell.
Interest rates may witness an uptick should the US-Fed attempt arresting inflation or pare down the bond buying program. A rise in interest rate appreciates the US Dollar which in turn dents the outlook on Gold. The US-Fed has not offered a timeline on revising interest rates, however the Senate's approval of an infrastructure bill and soaring inflation means the US economy requires funds and hence a decision may soon be announced.
Besides the above five factors Gold markets may witness a period of slackening from 20th September on account of Pitrupaksha season. This is a Hindu ritual observed as a period of mourning until October 6. Buying of jewellery or investing in Gold is abstained during this period.
For updated market info on live rates and factors do refer to Sify Gold rates.
Disclaimer: Views and opinions are solely for informational purposes and should not be construed as an investment offer. Readers are advised to engage with the professional service of a SEBI registered financial advisor prior to dabbling in such investments.