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Fear of price fall may keep investors away from gold

Investors are unlikely to turn to gold despite the steep fall in stock markets in recent weeks, according to analysts, because there are apprehensions that once the trade war between the US and China eases gold price may plunge as dramatically as it has risen.

Gold price has appreciated almost 27 per cent in India since the beginning of 2019. The increase was the highest in August, when the precious metal hit the Rs 40,000 per 10 grams mark, up from Rs 34,303 per 10 gm at the beginning of the month.

“Investment in equity at higher price-earnings ratio depends upon the performance of company in which money is being invested. Higher price of gold largely depends on geopolitical tension in the global arena,” said Surendra Mehta, national secretary, India Bullion & Jewellers Association. “For instance, the current rally in gold is largely due to the US-China trade war. The higher price of gold in the last two months has confused investors. At this point investors can think about other products for investing in gold like mutual fund SIP.”

On Wednesday, gold price eased as traders locked in gains after a 1 per cent increase in the previous session, but prices stayed near multi-year highs on heightened fears of a global recession as well as uncertainties around the Sino-US trade war and Brexit. Spot gold fell 0.6 per cent to $1,537.20 per ounce, but hovered near last week’s $1,554.56, its highest since April 2013. US gold futures were also down 0.6 per cent, at $1,546.6 an ounce.

US manufacturing activity contracted for the first time in three years in August, data showed on Tuesday, renewing fears of a sharp economic slowdown and weighing on risk sentiment.

“Investing in gold is not a comfortable option now. Most of the positive factors have been factored in the current gold price,” said Gnanasekar Thiagarajan, CEO, Commtrendz Research. “Some analysts are saying that there is some underlying support in gold which may see prices moving up. However, a fresh rally from here depends on the US non-farm payroll data that is slated to come out on September 6. If the data is good there might be come correction in gold prices. This is the time for profit booking in gold for those who had bought it at a lower level.”

Courtesy - Economic Times



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