Gold and silver prices continued their fall on Monday, slipping to their lowest level in five years, with the yellow metal losing four per cent in intra-day deals to $1,089.80 an oz in Asian trade.
On the MCX (Multi Commodity Exchange), gold prices dropped two per cent to a low of Rs 24,904.
The fall in the prices of these precious metals comes on the back of comments by US Fed Chair, Janet Yellen indicating early last week a possible hike in interest rates in 2015 given satisfactory growth in the US economy.
The fall on Monday, according to reports, is also attributed to a sell-off in China that saw five tonnes of gold being sold through the Shanghai gold exchange in a matter of minutes.
For the first time since 2009, China also announced its gold reserves at 1,658 tonnes, or 53.31 million fine troy ounces, which was quite below the market expectations. Experts believed that China would aggressively build gold reserves.
In April 2009, reserves were 1,054 tonnes.
Given the fall, what should you do? Is it a good time to sell?
Analysts expect gold prices to dip going ahead and would closely track the US Fed’s decision of hiking interest rates.
Gold is often considered a ‘hedge’ against an economic uncertainty.
The uncertainty regarding the global growth environment is best reflected in central banks across the world remaining the net-buyers of gold, analysts say.
Reports also suggest the overall global gold demand during the next 12 to 18 months to exhibit a low single digit growth rate, led by muted global jewellery consumption and reduced attractiveness of gold investments on the anticipated US rate hike.
India Ratings and Research (Ind-Ra), for instance, has maintained a negative outlook on domestic gold prices for FY16.
The agency believes movements in gold prices will largely depend on the US’ interest rate decision.
“In the event of a US rate hike, global gold prices could drop and range between $900 per oz and $1,050 per oz. As such, the domestic price of gold may decline and range between Rs 20,500/10gm and Rs 24,000/ 10gm,” said Deep N Mukherjee, senior director -- corporates at Ind-Ra.
“However, if the US continues to delay the interest rate hike, while major economies such as Japan and the euro zone continue with their unconventional monetary policy, the price of gold could creep up and range from $1,300 per oz to $1,350 per oz in FY16.
“Correspondingly, domestic prices could also increase from current levels and trade in the range of Rs 29,500 per 10gm to Rs 30,500 per 10 gm,” he added.
Shriram Pitre, senior vice-president and head of commodity & currency research at Anand Rathi, added, “These levels were expected since long. I expect the prices to consolidate around the $1,070 per oz – $1,075 per oz in the international markets for some time and can see a bounce to $1,130 per oz levels.
“Having said that, the overall trend remains weak and I expect gold prices to dip to $907 per oz levels over the next one year.
One can sell now and buy later on a decline.”