Indians buy gold on the auspicious day of Dhanteras before Diwali with the hope that their wealth and prosperity would increase during the year.
Gold purchase in India is linked with the price of the yellow metal and personal income. Gold buying from rural Indians is dependent on the harvesting of crops and income of farmers from sale of their produce. Whenever the country receives good monsoons, it results into higher disposable income, leading to rise in gold buying. In the recent past, gold buying rose due to fall in the prices. However, in the last one month, gold prices have been rising, which has reduced physical demand for gold.
In the international market, gold prices were under pressure for six consecutive months till September on the back of stronger global equity market, strengthening dollar index and expectation of rise in interest rates by the US Federal Reserve. The trend was reversed in October when COMEX gold futures recovered from a yearly low of $1162.70 per troy ounce to trade near $1,250 per troy ounce. Gold turned into a safe investment haven when there was selloff in the global equity market triggered by global economic uncertainties.
On the domestic front, MCX gold futures were trading near Rs 32,000 per 10 grams. In the month of July, when the gold prices were trading near a 7-month low, we had written a story in The Finapolis August 1 edition with recommendation to buy gold. The market has moved as per our expectation. Since gold price is now trading near a yearly high, once again the question arises — Is it a good price level to buy gold? Our analysis says that it is not the right time to buy gold for short to medium term. However, in keeping with the Indian sentiment, one can buy gold in smaller quantities on Dhanteras.
The medium term trend for gold is looking bleak as the expected hike in the interest rate by the US Federal Reserve in its last meeting of the year is likely to keep a tab on higher gold prices. The harvesting season has begun and the farming community is expected to get remuneration for their produce and may invest in gold.
The author is head of commodity research, Karvy Comtrade Ltd