September 15, 2022
  • September 15, 2022

As Central Banks Raise Rates, Should You Short Gold?

By on May 9, 2022 0
New Delhi: Gold prices have trended lower as rising interest rates push bond yields higher, diminishing the gold’s appeal.

After hitting a high of Rs 53,600 on April 18, the yellow metal fell by around Rs 2,000 per 10 grams in the domestic market. However, gold has failed to hold the Rs 51,000 mark so far.

In a rising inflationary environment, investors are unsure whether to buy bullion, which is a hedge against high prices, or short gold amid aggressive rate hike expectations.

NS Ramaswamy, Product Manager,

The stocks said that after the rate hike, for a short period investors should sell the yellow metal as aggressive global policy tightening will push 10-year US Treasury yields higher.

On the contrary, Tapan Patel, Principal Analyst – Commodities, HDFC Securities believes that it is too early to decide whether shorting gold is a good thing.

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The US Federal Reserve’s hawkish stance and fears of another rate hike are hurting the market. This is being suppressed by US inflation rising at its fastest pace in over four decades.

Securities’ Patel said gold prices in India will have limited impact on the RBI’s recent rate hike as the RBI got a head start on a key event in the RBI’s rate decision. American Fed.

“The rupee reacted strongly after the surprise rate hike announcement, paring some early gains as Indian bond yields stabilized near 7.38%. Rupee weakness will limit gold’s decline in the short term,” he added.

Gold is a pure non-returning asset class because it generates no income on its own. The price movement of the yellow metal is the only way to make money from it.

“The opportunity cost of owning gold is increasing,” Ramaswamy said. “Higher interest rates themselves are not the only bearish factor. Stock market movements and the bullish US dollar index are also an influencing factor.”

Even the technical charts indicate that the yellow metal could fall to Rs 49,900 in the near term, while on an extremely bearish note, it may fall to Rs 49,000, Ramaswamy said.