Against the backdrop of rising inflation, central bank action on rate hikes, a firm greenback and renewed global growth worries, investors are confused about whether they should buy the dips or short the yellow metal.
Sugandha Sachdeva, Vice President – Commodity and Currency Research,
Broking said gold is likely to garner strong demand as a value investment after the recent decline.
“We expect a recovery in prices from lower levels, where Rs 48,800 would be a crucial level to watch out for. As long as the prices are holding above it, we foresee renewed demand for the precious metal,” Sachdeva said.
Prithviraj Kothari, Managing Director, RiddhiSiddhi Bullions said Rs 50,000 is an important psychological mark for gold which could attract a lot of retail and institutional interest on safe-haven demand in these uncertain times.
In the next six months, we could see a rise of up to 20 per cent from the current levels, says Kothari.
Analysts believe the precious metal is undergoing a period of indecisiveness, where multiple factors are at play, and investors are waiting on the sidelines to get more clues about the future course of action before taking a position.
Against global equities, which are witnessing heightened volatility amid uncertainty caused by high inflation, rising interest rates, and the Russia-Ukraine war, gold has performed relatively well.
Bullion may continue to remain sideways, but the probability of further downside in gold seems low as growth worries, geopolitical uncertainty and spiralling inflation are likely to boost gold’s appeal, Sachdeva added.
The downside remains cushioned, at least for the time being, amid the prevalent risk-off environment, which tends to benefit the safe-haven precious metal.
“The ideal strategy would be to do a SIP in gold through electronic or physical means and accumulate it at every dip,” suggests Kothari, who believes that 15-20 per cent of the portfolio should be in gold.
On the other hand, Kshitij Purohit, research analyst at CapitalVia Global Research said that if US treasury yields continue to fall in the next sessions, the price will fall into the trend.
“The gold price will continue to move in a bearish trend, and traders may opt for a sell-on-rise strategy in the future sessions, where short holdings may build on upside market corrections,” said Purohit.
What about silver?
Silver prices have underperformed gold because of a sharp sell-off in the industrial metals due to lockdowns in China and a rally in the dollar index.
“Prices are in the oversold zone,” said Kothari. “Rs 58,000-60,000 is a very good level to invest in silver for the target of Rs 70,000 in a few months.”
Silver has fallen too fast and too much in comparison to gold in the last few trading sessions, said market experts. Looking at the overall trend, investors can look for bargain buying opportunities in the white metal, they suggest.
“Silver is a hybrid metal, where weakness in the industrial metals weighs on the prices of white metal as well. However, at this juncture, the price set up indicates an oversold state in silver as well as in base metals,” Religare’s Sachdeva said.
Purohit from CapitalVia added that traders may find sell-on-rise opportunities on the upside corrections in silver. “The immediate resistance is around Rs 62,000-64,500 in July contract, an ideal range to initiate short position for the short-to-medium term.”