Use the Mild Correction
While the fundamentals are still intact, experts feel that there may be a mild correction in gold prices after the recent spurt. Gold has seen five weeks of continuous gains and therefore, events like the upcoming US Federal Reserve meeting, G-20 meeting, etc can trigger a correction.
“The general market expectation is that US Fed may slash rates by 50 bps in its upcoming July meeting, but I doubt it; so there could be some profit booking at that time. Profit booking can also come due to some announcement at the G-20 meeting, which the market perceives as conciliatory,” Since dollar is the main driving factor, US non-farm payroll data is another event worth watching.
A strong data will strengthen the dollar and trigger profit booking in gold. However, experts say that investors should use such corrections to buy more gold. “Treat the upcoming weakness as a mild correction before the next up-move and not as a turnaround,”.
Gold-silver ratio at all-time high
Silver is likely to lag gold for some time to come.
Gold Bonds Still at a Discount
Since gold bonds offers several advantages like tax free capital gain if held till maturity, 2.5%-2.75% interest per annum, etc, investors can use it for long-term gold investments. Though lesser than before, they are still quoting at a reasonable discount to the spot gold price.
Gold is hot again. Heightened tensions between the US and Iran prompted a sudden spurt in demand for the yellow metal. It hit a six-year high in dollar terms and an all-time high in rupee terms (see chart) recently. So as an investor, what should your strategy be?
Over the last 10 years, gold generated annualised returns of 4% in dollar terms and 9% in rupee terms. Geo political tensions apart, the expected rate cut by the US Federal Reserve has also pushed up gold prices. “While the geo political incidents were the immediate trigger, long-term macroeconomic factors like the ongoing trade war between US and China, global economic slowdown and expected rate cuts are still intact and therefore, domestic gold may hit the Rs 36,000 mark by 2019 end and Rs 40,000 by 2020 end,” says Kishore Narne, Associate Director, Motilal Oswal Financial Services.
“With gold increased safe haven demand due to geo-political tensions and dollar weakness due to global growth concerns, gold prices can cross the psychological $1,500 mark and move beyond,” he says.Gold is on the boil nowGeo-political tensions have pushed up prices.