Gold prices have experienced a significant downturn just before Diwali, prompting a crucial decision for buyers and investors: is this an opportune moment to purchase the precious metal, or are further declines on the horizon?
Global and Domestic Price Declines
International gold prices have dropped approximately 4% this week, marking their weakest weekly performance in over four months. Bullion slipped towards $4,000 an ounce amid various market pressures. This correction has also impacted domestic markets, with MCX gold futures declining about 4% over the week, settling near ₹1,42,024 per 10 grams after hitting an intra-week low of ₹1,41,334.
In Chennai, retail prices for 24-carat gold saw a 3.85% weekly decrease, falling ₹5,560 per 10 grams to ₹1,42,480 from ₹1,48,190. On Friday, 24-carat gold dropped ₹190 per gram to ₹14,248, while 22-carat jewellery gold fell ₹175 per gram to ₹13,060.
Why Are Gold Prices Falling?
Several factors are contributing to gold's recent decline:
- Rising Oil Prices: Brent crude climbed above $112 per barrel due to concerns over energy supply disruptions following Houthi strikes on Saudi oil infrastructure. Higher crude prices can fuel inflation, potentially compelling central banks to maintain elevated interest rates for longer.
- Tighter US Monetary Policy: Higher interest rates and Treasury yields typically diminish gold's attractiveness, as the metal does not yield interest income.
- Strong US Dollar: A relatively robust US dollar adds further pressure on gold prices.
- Equity Market Correction: A broad equity market correction, particularly linked to artificial intelligence-related stocks, led investors to liquidate liquid holdings to meet margin calls, intensifying selling pressure on precious metals.
Gold Price Outlook and Support Levels
The immediate outlook remains uncertain, with experts closely monitoring the $4,000-an-ounce threshold. Ponmudi R, CEO of Enrich Money, noted that COMEX gold ended the week near $4,008 after briefly falling below $4,000. The immediate support zone is identified between $3,970 and $4,000. A breach below this level could push prices towards $3,900.
Conversely, gold faces resistance at $4,070-$4,100, followed by $4,170-$4,200. A sustained upward movement past these resistance levels would be necessary to improve the near-term technical outlook.
On the domestic front, Ponmudi pinpoints ₹1,40,000-₹1,41,000 as the immediate support zone for MCX gold. A break below this could lead prices towards ₹1,37,500-₹1,38,300. While the daily relative strength index (RSI) is near 31, suggesting oversold conditions and potential for a short-term relief rally, the moving average convergence divergence (MACD) indicator remains negative, indicating persistent selling pressure.
Upcoming events, such as the US Federal Reserve's October 27-28 policy meeting and personal consumption expenditures (PCE) inflation data, are expected to significantly influence bullion's next move.
Should You Buy Gold Before Diwali?
For those purchasing jewellery for weddings or festive occasions, the current correction might offer some financial relief. However, the potential for further price drops means buyers should avoid assuming prices have bottomed out. A strategy of staggered buying, spreading purchases across different price levels, can mitigate the risk of investing the entire sum just before another decline.
The decision also hinges on whether the purchase is for consumption or investment. Jewellery incurs making charges and other costs, diminishing its value as a short-term investment. For investors, gold exchange-traded funds (ETFs) offer market-linked exposure without the need for physical storage. Digital gold is another option, but investors should thoroughly vet the provider's credibility, costs, and regulatory protections.
For investors seeking short-term gains, exercising patience and waiting for prices to stabilize may be more prudent. A sustained recovery above key resistance levels would provide stronger confirmation that selling pressure is easing.