Why Gold prices have got low and is it expected to fall lower? Should people be looking to invest in it?

NS Ramaswamy, Head of Commodities, Ventura Securities says that value of the world’s raw materials is propelled higher due to the “Yield” factor. Passive investors have been tempted on the “returns” in commodities. The positive returns on Crude Oil, Copper and a host of base metals were on account of interest rates being feeble, bond yields remaining historically depressed and rolling positions along the commodities futures curve.

The logic is simple. When markets are tight, nearby futures contracts are more expensive than later ones. That means investors can buy contracts today and when they have to roll them to later months, they get the same exposure at a cheaper price (backwardation). This positive carry market is a significant driver of returns and a really important component of how an investor performs going forward.

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That’s not the case with regards to Gold prices. Gold prices are continuing to slide.

There are multiple triggers causing this subdued performance:

U.S 10 Year treasury yield gathering momentum and indicative of a recovery in the economy. It has reached 1.38% breaking the psychological levels of 1.30%. This is inversely proportional to Gold prices.
INR (Rupee) appreciation against the USD (Dollar) – So far Rupee has appreciated by 3.5 % approximately since the first week of Aug 2020 mainly due to higher FII/FPI money inflows. Also India’s disinvestment programs have signalled positive for the INR currency

Higher ETF outflows seen in the Q4 of the current year

Speculators reducing their bullish bets - Large speculators continue to shed their bullish bets and increase their bearish outlook, according to the latest trading data from the Commodity Futures Trading Commission (CFTC)

Dollar Index continues to remain strong and continues to remain in the range of $90 - $91 with support seen at the $88 mark

Many Central Banks withdrew their Gold investments.

Gold prices in rupee terms were also subdued due to the reduction in the import duty announced in India’s financial budget

The US Federal Reserve (Fed) comments that the inflation and employment remains well below Fed goals set. This indicates easy monetary policy is likely to stay in place. There are no breaks on the US fiscal and monetary policies and that’s on full acceleration. 
Technical Levels:

Short & Medium term Trend Downside of $1750 / 1700 / ounce will provide strong support levels. Similarly MCX Gold Support levels of Rs 45500 / Rs 44600 (10 gram)

Considering these factors and taking a cue on the technical support levels as above, one should start looking out to invest in Gold. The price had peaked at the Rs 54000 range ($2089).

Now is the time to look out for an opportunity to do fresh investment and if further any U.S $1.9 trillion stimulus package were to be passed and progresses we could see pressure on USD currency ($) which would support Gold prices. Locally we could also witness festive reactions to buying spree in Gold. This was lacking so far due to higher prices.

From the present bearish levels of Rs 46700 ($1805), Markets could expect a price recovery to Rs 48800. The bearish trend continues and only on a certainty of break-out above a closing price levels of  $1832 or Rs 47600 there could be a bullish trend change in Gold to levels of Rs 48800 ($1880).