Gold has lost all Trigger Points, recovery in six months is grim

Gold, the precious metal Indians love the most, is trading bearish in the last few sessions. On Monday, Gold momentarily slipped to a 14 month low of $1,677 per ounce before returning to $1,725 levels. On August 4, Gold traded at $1,830 per ounce.

The recent fall can be attributed to a positive US-Jobs report which spurred the US Dollar index and favored Bonds.

“Gold has lost crucial Trigger points for a higher price,” explains Surendra Mehta, the National Secretary for the Indian Bullion Jewellers Association to the question on why Gold rates took such a drastic fall.

Mehta explains why Gold rates did not hold. “For Gold rates to appreciate, there is no geopolitical tension… The worries last time about the US Federal Reserve’s economic package did not cause rate momentum… There was no major movement in Gold even when bond yields went down to at 1.12 percent. Hence, with better Bond Yields and a stronger Dollar, Gold had to trade down from current position,” he says.

Mehta adds, “the only factor that can cause volatility is the rising fear of the Delta virus strain.”

Chirag Sheth, Principal Consultant, South East Asia with Metals Focus echoes similar sentiments with that of Mehta. Explaining how the trade slipped to $1,677 levels, he adds, “That trade (at $1,677) was observed in some institutions in South East Asia where massive selling was spotted.”

“The ferocity of the trade was surprising. In South Asia, I see several of our clients and businesses closed owing to Delta virus strain. A country like Vietnam, for instance, reporting nearly 10,000 cases adds to fear.” (Vietnam has reported 9,904 new cases according to latest data)

Sheth observes that a lower price may encourage some institutional buyers to buy Gold which may lead to a short-term recovery. “It could be a $50 rally,” he adds.

Are IPOs to be blamed?

We also asked if the unusually high retail interest in IPOs across India and the US was to be blamed for the drop in Gold price. “There is no correlation, but you never know. After all, Money flows like water. A decade back, an investor had limited avenues to invest. In 2021, there are newer things vying against Gold for investor attention,” explains Sheth.

Will Gold rates head to normalcy?

Sheth suggests that the to-be announced US Inflation number could be a crucial ingredient to forecast Gold rates. “If the US-inflation projection (to be announced this week) turns temporary then the price positioning could be a misplaced one. But, there is of course pain as evidenced in the trends.”

He also indicates that a full recovery in Gold rates may take as much as 6 months. Sheth and Mehta agree that a lower gold price until Dhanteras is likely to be a tempting opportunity for buyers.

Besides Delta variant, another factor that may influence Gold rates is currency. A stronger Rupee makes Gold slightly affordable. There is likelihood that more Foreign Portfolio Investor (FPI) activity may strengthen the Rupee. At least 90 IPOs are slated for subscription until the end of the year.