Does a nearly 10% downside in 24K gold in less than a month makes for a good entry in gold ETFs?

From the highs hit in gold price in October of Rs 81,480 per 10 gm, gold prices (24K) in Delhi today are trading at Rs 73,870 per 10, signalling a steep cut of nearly 10 per cent and most analysts see correction phase to continue in the precious yellow metal given the current headwinds in the form of higher dollar index and rising US yield.

In the spot market today internationally gold prices gained some what resilience trading marginally higher at $2,566 per ounce after the previous day's PPI and weekly jobless claim in the US.

So, as the prices have come down steeply should one go into buying gold ETFs- a better investment in gold that offers good liquidity as well as stability. 

In the previous month, gold ETFs month-on-month recorded a jump in net inflow into the category at Rs 1,961 crore, up from Rs 1,223 crore. The precious metal's continuing price rise didn't dented investor sentiment. Infact the month recorded the highest monthly flow during the previous month.

Since Jan 2020, this category has received a net inflow of INR 24,153 crores, signifying enhanced investor interest in this segment.

In the words of Himanshu Srivastava – Associate Director- Manager Research, Morningstar Investment Research India- "Global uncertainty, geopolitical tension, global inflationary pressures and uncertainties around interest rate have reinforced gold's status as a safe haven and a hedge against inflation. These factors have consistently drawn investors towards gold over the past few years and continues to do so."

But now as the economic policies are likely to be inflational under the realm of the new US President- there is a view that there shall be a lesser aggressive rate cut going down. Nevertheless, fundamentals still hold strong, so gold ETFs is drawing investors attention.

over the years, Gold has gained prominence as an effective diversifier, prompting many investors to include Gold ETFs in their portfolios.

So should investors be taking on to gold ETFs- Does the current continuing correction offers good entry point?

Primarily Gold ETFs are being offered at the rate of the underlying bullion, so the current correction which as is anticipated to still pinch more, can be taken as an apt entry point into the precious metal

Furthermore, with US Fed cutting interest rates by 75 bps this year and dollar appreciating, how this is going to impact gold prices globally and investments therein needs to be observed.

Manoj Jain -Director -India Nivesh said, "Definitely yes, it's a good opportunity for gold investors." He added that prices corrected sharply after reelection of Donald Trump in the US Presidential Elections. Dollar index surged to 1 year high, US 10-year bond yields at 4.45 per cent and Bitcoin is also at highest levels. Gold is in highly oversold zone and providing greater opportunity for investors. There is no major change in the long term fundamentals of gold despite Trumps win. We are bullish on gold for longer term prespective and could deliver 10-15 per cent in years time, he added.

Ajay Kedia- Director-Kedia Advisory echoing a similar view said that it remains a good entry point in Gold ETFs and also a recent WGC report highlights investors inclination towards the metal. For the recent decline, he attributes it to the sharp increase in dollar index, treasury yield and US President's support to the bitcoin which led to some money flowing out from the precious metals.

Nonetheless, from a longer term view, the expert remains bullish on gold as trade war and inflationary pressure is expected to heighted under Trump's leadership.

Trivesh D, COO, Tradejini said, "I feel this could be a good entry point for long-term investors eyeing Gold ETFs. Year-over-year, gold prices have still increased by around 30 per cent, moving from Rs 60,000 per 10 grams in November 2023 to the current Rs 78,950."

If inflationary pressures remain or central banks change course, we might see a rebound. So, while the near-term outlook seems challenging, the current dip might be an opportunity for those who view gold as a hedge against long-term economic and geo-political volatility, noted Trivesh.

Technical gold price outlook

Pranav Mer, Vice President, EBG - Commodity & Currency Research, JM Financial Services said, "On the Technical chart, momentum looks corrective with resistance at 74500/ 75350, while on the downside support holds at 73400/ 72580".