Should You Be Buying Gold In India After Monday's Sharp Fall?

For the last 2-3 years, gold as an asset class has given negative returns. Until 2 years back the precious metal in India was quoting at Rs 31,000 and today it is down to Rs 25,000 per 10 grams.

On Monday, gold in the international markets fell to a 5 year low and when gold falls in the international markets it tends to fall in India as well. Check todays gold rates

For the last few years we have been constantly saying that gold is going nowhere. The reason for this pessimism is plenty. Let's study why gold is unlikely to go up in a hurry in India. Remember, gold prices in India track international prices and here we are giving factors that would see gold rates being impacted in the international markets.

Interest rate hikes in the US

It's likely that the US would see its first interest rate hike since 2008. When interest rates in the US rise, gold prices are likely to fall, as investors move money from gold to fixed interest bearing instruments. Analysts are seeing the possibility of an interest rate hike in Sept in the US, which is why there is already pressure on gold prices.

Dollar strength

When interest rate in the US are hiked, the dollar could strengthen putting further pressure on gold rates.

Indian rupee likely to remain strong

Gold prices in India largely depend on the rupee movement against the dollar. Since we import gold, if the rupee depreciates it increases the cost of imported gold and makes gold in the Indian markets costlier. However, with the current account deficit very low, it's unlikely that the rupee would depreciate and make gold costlier.

Greece crisis averted

Since gold is a safe haven asset, prices go up when there is a economic crisis or geo political tensions. When there is no crisis across the globe, gold is unlikely to go up. With the Greece exit from the eurozone area now averted expect some more pressure on gold prices.

Conclusion

It's unlikely that gold prices would go up in a hurry. The only reason to be buying gold is if you wish to diversify your portfolio. Otherwise, you might just want to hold onto the gold you have without worrying too much.

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