Sugandha Sachdeva, VP-Metals, Energy & Currency Research at Religare Broking says that after a stellar run in 2020 where gold prices scaled to record highs of around Rs 56191 per 10gm and closed the year with gains of 28%, the precious metal has cooled off and prices are witnessing a corrective wave. The question that comes to mind is what’s leading to this decline in gold prices?
 
Sachdeva says there are lot of factors leading to this profit booking in gold and have pushed prices close to Rs.46000 per 10gm mark. At a time when global equities are soaring to record highs amid vaccine roll-outs and prospects of accelerated global economic recovery, gold is experiencing a consolidation phase. Prices have retreated nearly 7.50 percent so far from the beginning of 2021, amid buying in risk assets, which has dimmed the safe-haven allure of the precious metal. However, it can just be considered a time-wise and price-wise correction.
 

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Sachdeva highlights a rebound in the dollar index from more than two-year lows, soaring U.S. treasury yields that have recently risen to one year highs has dented the bullion's appeal. Another factor that can be attributed to this corrective wave in gold is the recent flow of funds towards Bitcoin. On the domestic front, strength in the rupee and the slashing of import duty from 12.5% to 7.5% by the government in the Budget 2021 has also accentuated the decline in prices, though it now attracts Agri Infrastructure and Development cess of 2.5% and additional social welfare surcharge of 0.75%.
 
Outlook on Gold prices:
 
Sachdeva says going forward, another $1.9 trillion Covid relief package likely to be approved soon by the U. S. administrators, and a prolonged low-interest environment will support prices. Adding to the positive tone, prospects of rising inflation amid huge stimulus packages and growing money supply are expected to push gold prices on an upwards incline, as the yellow metal is widely seen as an inflation hedge. More so, this recent decline in gold prices will be welcomed by the investors, waiting on the sidelines for a long term buying opportunity, be it for investment or consumption purposes. Religare Brokings believe that the levels of Rs 45800-44800/10gm remain a good accumulation zone to diversify one’s portfolio and after a brief period of consolidation, the precious metal will again start to march higher.
 
Sachdeva says apart from looking at gold for consumption purposes, one can consider either of the effective avenues to invest in gold, be it sovereign gold bonds, gold backed ETFs, gold mutual funds or if one can actively manage, gold futures available on the commodity exchanges are also a good option.
 
Sachdeva says summing up, gold is likely to retain its charm from a medium to long-term perspective and its bullish story is still intact. Furthermore, after the steep rise in global equities and high valuations, a cyclical shift could be seen where money could again chase gold at a bargain. After all, the precious metal has a strong track record of steady gains.