Bullion corrects on profit-booking, to recover and continue rally

Chennai:When the global equity markets crashed on Monday, gold prices in the international market fell by $180 per ounce, over Rs 3500 per 10 gm in the MCX and Rs 3350 in the Delhi spot market as the investors liquidated bullion to cover margin calls in stocks. However, analysts believe that bullion will recover and make new highs this year with the geo-political and geo-economic factors working in favour of bullion.

After crashing from a high of $3164 on Thursday to a low of $2972, gold recovered to $3049 on Monday. In the Multi-Commodity Exchange gold fell from Rs 91,423 per 10 gm to Rs 87830 and Delhi spot market saw prices falling from Rs 94,350 to Rs 91,000.

“Historically, bullion prices fall when the equity markets crash as investors book profits to cover margin calls in equity markets. However, we have seen that bullion recoups and gains significantly during global market stress,” said Ajay Kedia, MD, Kedia Commodities. Further, inflationary and recessionary fears, central bank and ETF buying and dollar weakness will continue to support bullion.

During the 2008 Global Financial Crisis, the S&P 500 index plunged by 57.69 per cent, while gold surged 39.56 per cent after a knee-jerk correction. During the pandemic in 2020, equities fell 35.71 per cent and gold rose 32.48 per cent. The dot-com bubble bust also saw S&P 500 drop 49.20 per cent and gold rise 21.65 per cent.

Currently, in the ongoing tariff war scenario, the S&P500 has corrected 21.87 per cent, and gold is already up 21.15 per cent.

Goldman Sachs views the recent pullback in gold prices as a buying opportunity and continues to recommend long positions in the metal as its “highest-conviction view in commodities.” It maintains $3,300/ oz as gold year-end forecast. Prices in MCX are expected to see Rs 94,500 in the next six months.

Silver saw sharper decline of 14.6 per cent against gold’s 3.9 per cent as the gold-silver ratio had breached 100 levels and historically has not sustained beyond 92. Further, silver being an industrial metal, the weakness in base metals also affected it. Copper was down 12.2 per cent, aluminium 7.7 per cent and zinc 9.1 per cent. Silver too is expected to move up to Rs 1.30,000 this year.