Gold Prices Going Downhill, Is it Time to Buy Gold?
After a fairly positive start to the year, Gold prices have been declining off late mainly on two counts – one the US Federal Reserve decision to cut stimulus for the US economy by another $ 10 billion, and the other a technical sell signal as per the daily charts.
At the start of the calendar year the forecast was not so rosy for Gold, as prices were in a downtrend. However, the yellow metal surprised us with two straight months of gains in 2014. The Gold prices rose by as much as 5.5 per cent in India – January-February 2014. Generally, Gold which is considered as a safe haven investment tends to rise ahead of major uncertainty in the world markets.
There were couple of major reasons for the uptrend in the Gold – firstly the apparent slowdown in China. With the Chinese economy showing signs of a slowdown, there are widespread fears that the Chinese investors will look for alternative investment options – and one of them could be Gold. The other is the on-going Russia-Ukraine crisis, which, if gets blown out of proportion can destabilize a lot of world economies, including the European ones which seem fragile at the moment.
However, apart from the fundamental factors, traders and investors in Gold were caught off-guard for a technical breakdown on the daily charts. It all started around the US Federal Reserve meeting last week. The 19 March, 2014, the US Federal announced its decision to cut down stimulus by another $ 10 billion to $ 55 billion. The US Federal in December 2013, cut its first $ 10 billion in stimulus from the original $ 85 billion bond-buying programme per month. It was followed by a round-two in January – another $ 10 billion cut, and now the March cut. More importantly, in the March policy review, the US Federal Reserve also said, that the interest rates may start to rise in early 2015. This is what spooked the commodity markets.
Internationally Gold prices have declined around 4 per cent in the last eight trading sessions. Gold prices from $ 1,357-odd levels, now trade at $ 1,303 per ounce on the NYMEX. Back in India, the fall has been steeper – MCX Gold futures have crashed by 6.6 per cent to Rs 28,570-odd levels on Wednesday, 26 March, 2014. The steeper fall has been on account of a sharp appreciation in the Indian currency. The Indian Rupee has gained over a rupee or a per cent in the last four trading sessions versus the US dollar.
The two major questions on investors mind is now – how much more will the prices decline or is this the right time to buy Gold? Technically, Gold futures in India have hit the oversold territory, and strong support is expected around Rs 28,300-odd levels. Fundamentally too, the global risks remain intact – with the wobbly Chinese economy, geo-political tensions. For the records, Russia has raised its Gold reserves holdings in February by 7.247 tonnes to 1,041.96 tonnes.