Gold has been considered as very precious for mankind. Indians are more fascinated about buying and storing gold. Gold buying in India is dependent on the personal income, occasions and price of gold. Whenever the price falls, the retail demand for gold in India emerges. In the recent past, we have seen fall in the gold price in international as well as domestic market.
In the international market, after posting three years of consecutive positive returns, gold prices were on the rise in first half of the year. However, starting from mid-June, gold prices have started falling due to host of events. The comex gold futures prices fell to one year low of $1210.70 per troy ounce in the month of July as the strength in the dollar index, which surged to one year highs made the gold dearer for holders in other currencies.
In the US, gold is considered as a safe investment and it attracts more investment during the times of economic uncertainties. However, the trade war between United Stated and China failed to render support to gold prices. Moreover, the decision of the US Federal Reserve to raise interest rates twice in first half of the year and its intention to hike it further also pressurized gold prices.
In India, however, price fall was limited because of depreciation in Indian rupee against the US dollar. Indian rupee has depreciated by 1.87 per cent since start of June 2018, thereby capping sharp fall in gold prices. Gold futures price on MCX fell to 7 month low. The gold buying pattern can also be linked with monsoon, which will encourage rural buying if the farmers harvests good crop and earns handsome amount.
Since the gold price are trading near 7 month low, the question now is it the right time to buy gold? The answer is yes. One can start accumulating gold for long term investment. In the short term, gold prices are expected to remain under pressure because of interest rate hike scenario in the US amidst strong equity market. The fall in the gold price in the international market could trigger investment flow to Exchange Traded Funds very soon, which once again spark buying in the gold.
On the domestic front, since the prices are near seven month lows, the retail demand is emerging. The monsoon has been normal so far and agricultural activities are showing an improvement. Post harvesting of kharif crops, we could see more of rural demand for the gold.
The author is head of commodity research, Karvy Comtrade Ltd