Gold Witnesses 6% Fall In A Month; Should You Buy The Dip?

Yellow glistering metal has lost a huge degree of its sheen and has sharply come out its key price level of $1800 and last at around 4:04 am or 18:32 Ny time quoted higher by a tad at $1740.5 per ounce. The losses are precisely triggered on the back of global central banks quantitative tightening exercise to deal with inflationary woes.

This is as in times of interest rate increase, gold which is a non-interest yielding asset becomes less appealing as the opportunity cost of holding bullion increases.

WGC foresees tough second half for the yellow metal:

The report says that though the asset emerged as the best asset in the first half it is to see challenges in the second half. Already the metal is trading below its key psychological level.

Reasons gold will overcome the current headwinds of rising interest rates

Analysts are of the view that while the global central banks are resorting to rate hikes. The move will be limited. Analysts in a Kitco report is mentioned as saying that "While most market participants still expect significant policy rate increases, some analysts argue that central banks may not tighten monetary policy as much as expected. Their reasons include potential economic slowdowns that may result in contractions, but also in some cases a switch from supply constraints to supply surpluses in non-commodity consumer sectors".

"Gold has historically performed well amid high inflation. In years when inflation was higher than 3%, gold's price increased 14% on average, and in periods where US CPI averaged over 5% on a y-o-y basis - currently at ~8% - gold has averaged nearly 25%," the analysts said.

So, as the momentum still holds bullish one can make staggered bets in India too may be via instruments such as SGBs and the likes to capitalise on the current fall in gold price. Further gold always tends to provide stability to your portfolio and is a must for portfolio diversification.

GoodReturns.in