Gold to lose sheen: Should you buy yellow metal this Diwali?

New Delhi: With Diwali round the corner, buying gold on this auspicious occasion is discussed in several Indian households. However, the precious metal has been missing its charm recently.

It has remained in a tight range, though it outperformed other asset classes in the pandemic-hit 2020.

Domestic gold imports witnessed a sharp jump but strong outflows from gold-backed ETFs have dampened the sentiments. Tapering tantrums in the US have also led to weakness in gold.

Sugandha Sachdeva, VP-Commodity and Currency Research, Religare Broking, has suggested investors buy gold in a staggered manner in the range of Rs 46,400-46,400. “The safe-haven asset has been an underperformer lately, thanks to easing restrictions across the globe, the rampant vaccination drive, and improved risk appetite leading to money flow into equities,” said Sachdeva.

Gold prices have remained range-bound after a stellar rally last year, and the yellow metal hit a lifetime high of Rs 56,102. Analysts said, technically, the gold has formed a strong base in the range of Rs 44,500-45,000.

Its prices are expected to get a boost from inflation worries and other economic concerns, said NS Ramaswamy, Head of Commodities, Ventura Securities. Gold has been an integral part of the portfolio and investors should see it as a hedge against inflation and other economic uncertainty. Analysts have asked investors to allocate 10-15 per cent of their resources in gold. “However, positive US employment and other economic readings have not boosted gold prices. Gold prices remained an underperformer on the back of rising yields and a strong dollar index,” he added.

Investors should buy gold within the range of Rs 47,500-48,000, said Ramaswamy, adding that the prices were expected to hit Rs 52,000 by the end of this year. “Once the interest rates start to rise, there would be a greater appeal to the dollar currency. Thus, the yellow metal would remain in the range of Rs 50,000-52,000.”

However, if inflation is not under control, a correction in gold prices is unlikely. In such a case, it might retest the all-time peak of Rs 56,102 by next Diwali, analysts said.

Some interesting developments are likely to take shape and could support the metal to shine again. “The major catalysts behind a renewed interest could be the rising price pressures, a delayed interest rate hike, ballooning global debt, emerging real estate crisis in China and stretched equity valuations,” Sachdeva said.

Bank of America and Goldman Sachs expect gold prices to hit $1,900 per ounce and $2,000 per ounce in the international market by the end of the year.

“If we look at a one-year time frame, prices are likely to surge towards Rs 52,500, which would be a key hurdle on the higher side, and if momentum favors, even Rs 60,000 levels are possible by next Diwali,” added Sachdeva.