In about 75 days, gold has given investors a return of up to 14 percent. The special thing is that before this, for three consecutive years, gold has given investors an annual income of 17 percent. Which is much higher than the return of 11.5 percent of Sensex. Currently, gold is leading the stock market in both short and long term situations. But this comparison is being done when gold is at a new high and the stock market has seen a decline.
Now the biggest question is whether the time has come for investors to make profits by selling gold. We are saying this because this has been seen in past history. When gold fell after a continuous rise, it took a long time for gold to reach the same height again. Let us try to understand from experts and data what kind of steps investors need to take in gold.
Is there going to be a crisis on gold?
Experts believe that the ongoing excellent performance of gold may soon end. Giving information in the media report, Chirag Mehta, CIO of Quantum AMC, says that many of the diplomatic talks currently going on can help create a more stable international environment. Apart from this, inflation is also being controlled. Due to which gold prices may fall. Ventura Securities has indicated in a note that the strong dollar and the low possibility of further reduction in interest rates by the US Fed will also curb gold prices.
Experts also point out that gold’s risk-return payoff is not in its favour in the near term. If gold’s past price behaviour is considered an indicator, it appears to be overbought. For example, an analysis of gold prices since the 1970s shows that the current gap between the price of gold and its 200-day moving average is unusually large. This pattern has always signalled the beginning of prolonged weakness in gold prices, following a period of excessive gains.
Why gold might crash
Niranjan Awasthi, SVP of Edelweiss Asset Management, says in a media report that currently gold is seen performing better than equity. But it can also be the opposite in the coming days. He said that analysis of the Sensex-to-gold ratio since 1999 shows that when this ratio is less than 1, equity can outperform in the next three years, and when this ratio is more than 1, gold can outperform equity in the next three years. The current ratio is below the long-term average of 0.96. This means that gold prices are high. Awasthi says in the report that equity can overtake gold in the next three years. Historical patterns show that like equity, gold also goes through cycles. A long period of decline has also been seen after making very high profits. In fact, whenever gold has seen a decline, it has been quite painful for investors.
History of the last 50 years
Let’s try to understand this with an example. Gold prices were at their peak in January 1980. After that, for the next two years, there was a 56 percent decline in gold prices. After that, it took about 10 years for gold to reach its peak again. After that, gold saw a new peak in November 1989. A similar situation was seen in the year 2012. Gold prices reached their peak in November 2012 and after that, there was a 30 percent decline for the next two and a half years. Gold saw a new peak in the year 2019 i.e. after 6 years and 7 months. Earlier, gold had also touched its peak in February 1996. In about three and a half years, there was a 30 percent decline in gold. After that, it took 6 years and 4 months for gold to reach the same peak.
fall in gold prices
However, on Monday, there is a decline in the price of gold in the country’s futures market. On the country’s futures market Multi Commodity Exchange, gold is trading at Rs 87,800 with a decline of Rs 191 at 11:20 am. Whereas during the trading session, the price of gold reached the day’s lower level with Rs 87,692 per ten grams. The special thing is that on Friday, the price of gold reached a lifetime high of Rs 88,310. Since then, the price of gold has seen a decline of Rs 510. If today is excluded, gold has given a return of about 14 percent to investors. This means that the price of gold has seen an increase of more than Rs 105,00 this year.
