Gold prices witnessed their biggest one-day drop since 1983 on Monday as a selling frenzy that began last week gathered speed. In global markets, prices of the yellow metal plunged $140 to $1,361 an ounce, a decline of 9 per cent. Gold is now trading at its lowest price since February 2011.
Back home, the key gold contract for April delivery recovered from the day's low of Rs 25,270 and traded 0.6 per cent lower at Rs 25,484 as of 11.10 a.m. on the MCX. April gold futures have plunged 14 per cent over the last five days, tracking the weak global cues.
NDTV Profit spoke to two experts about the right strategy to trade in gold amid the current weakness. Here's what they have to say.
Gold prices may fall to Rs 22,000
Kishore Narne, associate director and head of commodity and currency trading at Motilal Oswal Securities, said gold prices have strong support at Rs 24,500 in the short term, but because of the panic selling it is tough to predict a bottom. (Watch: Gold prices may fall to Rs 22,000)
Gold has been in a free fall since the crucial $1,540 support level was breached after a gap of two years, Mr Narne said, likely triggering off many stop losses below $1,500 levels, which may have led to the steep selloff.
Although domestic gold exchange traded funds (ETFs) did not witness major outflows until March, that scenario may change this month. Also, because gold prices in India have lagged global prices, the correction may be more severe here.
An appreciation in the rupee will also have a big impact on gold prices as commodities are traded in dollar terms.
"If the rupee appreciates to 50 against the dollar, gold prices may fall to Rs 22,000," Mr Narne said. That may be the right time to buy, he added.
Time for value investors to participate
Ajay Srivastava, MD of Dimensions Consulting has gone long on gold after the recent selloff, which he attributes to ETF blip, heavy sales and margin trading.
"Gold prices will reach a point of inflection when you start to believe that value investing makes sense. Sure, gold prices can go down to Rs 22,000 - Rs 20,000, but then you need to weigh in the factor that yesterday in the actual bullion market you could not buy silver," Mr Srivastava said.
There is an inherent demand for gold in countries like India and China and this physical demand may support gold prices. The market also has a role to play; for example, you could not get silver yesterday because shopkeepers did not want to sell the metal at a Rs 5,000 discount to what they bought it for, and so they shut shop, Mr Srivastava said. (Watch: Value investors should start buying gold)
Over the past month, the difference in physical and financial gold in ETF has worked out to Rs 3,000 per gram, which is not a healthy sign for markets. But the time for you to start nibbling into the market has come, he added.
You may not go the whole hog because we cannot call the bottom, but we know that physical demand is on our side, Mr Srivastava added.