Gold price drops to multi-month lows; time to buy the dip?

Precious metals, which rallied in the first half of the current calendar, have lost steam. They have seen deep cuts over the last few weeks, barely holding the key psychological levels.

Market experts said the interest rate hikes amid inflationary pressures have dented the appeal of the safe-haven metal.

Silver slipped below the Rs 55,000 mark on Friday, whereas the gold settled below the Rs 50,500 mark. Though precious metals are turning lacklustre, market analysts continue to have faith in them.

Prithviraj Kothari, Managing Director, RiddhiSiddhi Bullions (RSBL) said monetary tightening by the US Federal Reserve is hurting gold prices, which have been trading at multi-month lows lately.

He said rising inflation and multi-decade high CPI numbers for about one year are a serious cause of concern, which has sparked aggression in the Fed’s rate hike pace. “However, rising recession fears will be supportive for bullion in the long term.”

A stronger dollar has always been a headwind for commodities, especially gold, as its price is high and expensive to the users of other currencies.

Adding more, NS Ramaswamy, Head of Commodities, Securities said gold, at this point, is heavily weighing on the inverse correlation of dollar strengthening. “It has been ignoring the direct correlation of high hot inflation.”

Market participants see another rate hike of 75-100 basis points from the US Federal Reserve.

Anuj Gupta, Vice President- Commodities,

said gold and silver prices corrected sharply last week, in line with expectations as the fear of recession also faded the demand for yellow metals as a safe haven.

Ramaswamy from Ventura Securities believes the dollar index is close to its ‘peak’ and expects money to flow back to gold. “Dollar index is in overbought territory and there is a technical pull-back expected,” he added.

The market participants believe the Fed would focus on the US economy concerns and stop rate hikes in Q4CY22 and Q1CY23 and claw back the treasury yields. That would be the time for the bullion to rally, thanks to rising fund flow.

Kothari suggested that investors should continue to invest in gold via SIP and take the advantage of the decline to lower their average cost. He sees gold at Rs 54,000 per 10 grams and silver at Rs 64,000 per kg in the second half of 2022.

On a technical basis, gold may drop further in the near term, which would be an opportunity for medium to long-term investors, said Ramaswamy, who is moderately bullish on the bullion in the medium term.

“Silver has underperformed gold as the interest has waned. Silver will begin to lead gold once the yellow metal has confirmed a bottom,” he added. “One should buy silver after it sustains its support levels of Rs 55,500 or even Rs 53,900.”

Gupta from IIFL Securities suggested selling gold with a target price of Rs 49,600 and silver with a target price of Rs 53,500. Stop loss can be kept at Rs 51,300 and Rs 59,000, respectively.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)