look news india
After continuous record rise in the domestic futures market (MCX) and local bullion markets for the last few weeks, there has been a sudden sharp correction in the prices of gold and silver. On the Multi Commodity Exchange, the price of gold has slipped from its highest level, while heavy selling of 2 to 3 percent has been recorded in silver. In the international market (COMEX) also, heavy pressure was seen on precious metals at upper levels. While this decline after the recent rise has given some relief to jewelery buyers, it has also raised questions in the minds of new and old investors whether this decline will continue further or is a new buying opportunity emerging.
Main reasons for fall in prices
According to commodity and market experts, the following global and domestic reasons are mainly responsible for the recent fall in gold and silver:
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Heavy Profit Booking at Higher Levels: After the one-sided stormy rally in the past few days, big institutional investors and traders in the international and domestic futures markets have made huge profits at high prices.
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Strength in dollar index and US bond yields: The US Dollar Index (DXY) and 10-year bond yields have improved after signals from the US Federal Reserve regarding the interest rate stance. A stronger dollar makes gold more expensive for foreign buyers, putting pressure on demand.
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Impact of sluggish industrial demand on silver: Silver is not only a precious metal but also an industrial metal used extensively in industries like solar energy, electronics and EVs. Silver fell more sharply than gold due to fears of a slight slowdown in global manufacturing data.
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Temporary pause in geopolitical tensions: In the absence of any new unexpected increase in tensions in West Asia and globally, the immediate demand for gold as a ‘safe-haven’ (safe investment) has moderated slightly.
What should be the correct strategy for investors going forward?
Market experts believe that the long-term fundamentals of gold and silver are still extremely strong. The current decline is a normal technical correction, which is considered natural after a sharp rally. In such a situation, investors should adopt the following strategies:
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Buy on Dips Policy: Instead of investing huge capital in lump sum, invest in pieces (Staggered Buying) every 2-3% decline. This will keep the averaging of your purchase cost better.
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Prefer Digital Gold and Gold ETFs: Physical jewelery has additional cost of making charges and GST. From a pure investment perspective, gold ETFs, gold mutual funds or digital gold are the most liquid and cost-effective options.
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Portfolio Diversification (10-15% allocation): Always keep at least 10 to 15 percent of your total financial investment portfolio in gold and silver. It acts as the strongest hedge against stock market volatility and inflation.
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Short-term traders keep strict stoploss: Those who trade the futures market or short-term should take positions with strict stoplosses given the extreme volatility and exercise extra caution if existing support levels are broken.
In view of the upcoming festive and wedding season, there is every possibility of domestic demand strengthening again. Therefore, for long-term investors, the current downturn is an opportune time not to panic, but to add precious metals to their portfolio in a systematic manner.