The outlook on gold prices has turned bearish just right in time as Indians gear up to purchase gold ahead of Diwali. Experts believe the prices may come down in the range of Rs 28,700-28,500 in the short-term, which, they suggest, should be seen as an opportunity to invest in the yellow metal as the longer-term outlook remains upbeat.
"Diwali is an auspicious time to buy gold. We suggest accumulation should be done at somewhat lower levels because there are certain concerns that will put pressure on the gold prices in the near term but will also provide an opportunity for a longer-term perspective to add on to gold," said Sugandha Sachdeva, assistant vice-president and in-charge of metals, energy and currency research at Religare Commodities.
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Kishor Narne, Head of Commodities & Currencies, Motilal Oswal Commodities sees an excess of speculative froth in the market and believes factors such as uncertainty over election outcome and odds of interest rate hike in US will help gold re-emerge as safe haven amid risk-off environment.
"Given the uncertainty over election outcome in US and other global factors, we believe that gold will re-emerge better once the excess speculative froth is out of the market. However for the short to medium term, we believe that choppiness would continue, giving long term investors opportunity to capitalize on the fall," said Narne.
Much needed correction
Gold prices have had a golden run-up of about 25 per cent since January this year, which calls for a correction in the short-run to justify the pricing.
"Given the rally since the start of the year, the long side in gold had become a crowded trade and was thus vulnerable to liquidation. We still believe that the larger bull trend is intact but gold could see intermittent price corrections and an extended period of consolidation before we get any meaningful triggers for a fresh rally," said Narne.
Concerns over Fed rate hike
Gold prices have slumped sharply in the past few days as the odds of a Fed rate hike have increased after a strong run of US data and dollar strength. Although prices are expected to rule in lower range in the run-up to Fed policy review in December, it will start going north as Fed has projected less aggressive rates hikes in 2017.
Gold prices begin to fall when interest rates rise as gold's value recedes relative to other interest-bearing assets. However, a reduced pace of the Fed rate hikes will keep intact yellow metal's appeal as safe-haven.
Meanwhile, Assocham, in a research note said that gold prices are likely to stay firm in the range of Rs 30,500 -33,500 per 10 grams in the backdrop of continuous global political and financial risks coupled with revival in demand in the domestic market.
"Going forward, the festive demand will get a further push from the wedding season, which is the main contributor to gold consumption in India. The upside in the short term of a few months is seen between Rs 1,500-2,000 while the downside could be limited to Rs 1,000-2,000 per 10 grams," it said.