Roll-out of a uniform indirect tax code or GST and Prevention of Money Laundering Act, or PMLA, has put the gold
market in a spot. At the global level, expectations that the US
Federal Reserve may raise interest rates for a third time by December this year has prompted traders to take a cautious stance on bullion. Gold
is highly sensitive to the US
interest rates and inflation and increases the opportunity cost of holding non-yielding bullion which is priced in US
Looking ahead, I don’t expect any strong moves in gold
prices in the immediate future in either direction, unless things change fundamentally. US
rate hike changes and dollar
trajectory are key factors that traders will keep a tab on at the global level. Back home, government policy decisions and rupee volatility would be the prime factors which could decide the direction of domestic gold
prices in the near-term.
From an advisory perspective, I suggest investors hold gold
till December before taking a call on the yellow metal, as the US
Fed will clear the air on interest rates by then. This will impact how the dollar
moves, which in turn, will dictate the trend in gold
prices are ruling a bit higher in India as compared to international prices. Therefore, in the short term, it is better for investors not to take any fresh long positions. That said, they can continue to invest in gold
in the typical formats by monthly or periodic incremental investments. Since the Indian rupee is depreciating against US
currency, it is better for investors to take a long call on gold
by investing in Sovereign Gold Bonds
(SGBs) periodically auctioned by RBI, which have several add-on benefits like sovereign guarantee, safety, easy liquidity among others.
Hareesh V is Research Head, Geofin Comtrade
Disclaimer: Views expressed are personal. They do not reflect the view/s of Business Standard.