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It is again that time of the year when gold markets prepare for the festival of Akshaya Tritiya.
With Akshaya Tritiya falling on April 21, jewellers have already opened advance booking facilities for gold purchases on the day and are offering discounts on wastage and making charges.
It may be auspicious to buy gold on the day, but as an investor, does it pay to buy gold when everyone else is doing it?
Studying gold price data for the last 10 years, we find that it doesn’t matter because gold price trends do not seem to be particularly affected by Akshaya Tritiya. Trends that have already been in place in the run-up to the festival hold sway over prices.
If you take last year, gold prices dropped from ₹30,065/10 gram (of 24 karat) on April 25 to ₹29,800 on May 2, the day of Akshaya Tritiya.
One month later, the price was at ₹26,840/10 gram, down by another 9 per cent. So, timing your gold buying around Akshaya Tritiya or even before it doesn’t actually make a difference to the returns. If you thought the upcoming festival would drive up gold stocking, that doesn’t happen either. Despite all the hype around the festival, only in two out of the last 10 years have gold prices risen by 2 per cent or more in the week running up to Akshaya Tritiya.
Domestic gold prices, whether during Akshaya Tritiya or otherwise, follow the international market and seem to be unaffected by local changes in demand or supply. In the domestic market, gold prices in the spot market on Friday were ₹26,880/10 gram (of 24 karat), up 1.4 per cent from ₹26,500 last week. Prices in the international market closed at $1,207.6/ounce, up from $1,206.9 last week.
On the chartsIn the futures market, the MCX Gold contract made some gains. The contract closed at ₹26,781, up 2.2 per cent for the week after hitting ₹27,095 on Monday. MCX Silver closed at ₹36,713, down 1.7 per cent, tracking the lower silver prices in the international market. Spot silver prices in the overseas market dropped to $16.46/ounce, down 3 per cent.
The rupee held at 62 against the dollar despite the latter gaining strength against most currencies in the international market.
MCX Gold is facing a strong resistance in the ₹27,000-27,100 zone. The resistance has to be breached for the contract to make further gains.
The first near-term upside target for the contract is ₹27,500 and the next one is at ₹28,000. On the downside, the first support is at ₹26,500 and the second at ₹26,350.
MCX Silver had a very volatile week. Though it moved higher to break past resistance at ₹38,000, to ₹38,500, it then declined to close at about ₹36,713.
This week, if the contract declines to ₹36,700, it can fall further to ₹36,000 and then ₹35,500. However, if it takes support at ₹36,700, the target could be ₹37,200 first and then ₹38,000.
Last week, despite the US dollar gaining, gold prices unexpectedly held ground. Minutes from the Federal Reserve’s latest meeting released on Wednesday showed that many officials had supported a rate hike as early as June. This helped the dollar edge up. SPDR Gold Trust, the world’s largest gold-backed exchange traded fund, saw investors pull out some money. The fund’s holdings dropped to 734.29 tonnes, down from 737.24 tonnes in the previous week.
This week is going to be action-packed for bullion traders with key data releases in the US. On Tuesday is the retail sales data, followed by industrial production on Wednesday. On Thursday will be the announcement of the housing starts for March and the weekly jobless claims number. On Friday is the release of the consumer price index.
Technically, gold seems to be in a favourable zone. If the rally continues, $1,300 will be the next target. Once the $1,300 level is crossed, there could be more gains in the offing in the short to medium term.
However, if the current strong trend reverses and the metal breaks below $1,180 again, it could test $1,140.
Silver has been facing a resistance in the $17-18 zone. It needs to move above $18/ounce, to see a trend reversal.
If it breaks the support at $16, there could be further downside risk.
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