Gold prices have been moving within a range for the past few weeks. Traditionally considered a safe-haven investment, gold usually shines in times of geopolitical uncertainty. For example, investors not confident of capital market investments at a certain time move to gold, and vice versa. Fears of US-China trade war and hopes of a rate hike by Federal Reserve - the US central bank - have kept gold prices in a range. In the domestic market, gold prices have stayed around Rs 31,000-31,750 since April, data shows. During this period, global gold prices have quoted between $1,350 and $1,310 per ounce.
Last Friday, gold prices had hit their lowest since May 23 at $1,289.12. Back home, gold prices dived by Rs 300 to Rs 31,600 per 10 grams, extending their slide for the third straight day at the bullion market. Sluggish local demand from jewellers coupled with weakness in international market put pressure on domestic gold prices, say traders.
Rate hike probability in June meeting by US Fed and stronger dollar are major trigger for gold prices to fall in 2018, said Prathamesh Mallya, chief analyst for non-agri commodities and currencies, Angel Broking. Near term outlook for gold remains negative, with $1,240 and $1,360 being two possible points on the lower side and higher side respectively, he said. "The bias remains lower only."
US job growth accelerated in May and the unemployment rate dropped to an 18-year low of 3.8 per cent, underpinning expectations that the US central bank will raise interest rates this month. Higher interest rates discourage the buying of non-interest-paying bullion, which is priced in dollars.
(Read: Physical Gold, Gold ETFs Or Gold Bonds: Where To Invest Your Money?)
For investors in India, current prices are too high and the returns can be meagre at these points, according to Mr Mallya. "We think Rs 28,000-29,000 are right accumulation points in the physical market," he added.
"Whatever the state is, one should at least have 10 per cent of portfolio invested in gold," said Mr Mallya.
Gold could start to rebound in the final quarter of this year to average $1,375 an ounce in the last three months of next year and could touch a high of $1,400, news agency Bloomberg cited Bart Melek, global head of commodity strategy at TD Securities, as saying. "We do ultimately think that as we move into 2019, the US dollar will weaken, which is a very powerful fuel for the gold complex," he said.
If the RBI does not hike interest rates, it would be mildly positive for gold prices, said Abhishek Bansal, founder and chairman of ABans Group of Companies.
"(In case of no rate hike), a narrowing India-US interest rate differential, in conjunction with EM (emerging markets) fund outflows and high crude prices will continue to put downward pressure on the rupee. In the event of a (25 basis points) rate hike, we expect short covering in USD-INR, leading to a small correction in gold prices from current levels," he said.
Gold has traditionally been used as means of safe investment compared with other asset classes. Experts suggest refraining from buying gold on the basis of sentiment alone. While physical gold provides high liquidity, demat gold investment options such as gold ETFs (exchange-traded funds) and sovereign gold bonds (SGBs) provide price consistency, say financial planners.