Gold Prices Fall Over 8% From Record High: Should You Buy The Dip? Experts Weigh In
Discussing exposure to gold, financial planners caution against rushing in, suggesting that the current valuation still poses a risk for near-term returns.
Following a sharp rally, the gold market appears to have entered a period of consolidation. Gold prices have slipped Rs 11,600, nearly 8.56% down from its life time high. The gold prices in India today stand at Rs 121,360 on Tuesday.
Despite the sell off, leading brokerages like Goldman Sachs, UBS and others have not changed their stance on the significant upside in the long term. Now, this raises the question for investors, whether now is the time to 'buy the dip.' Discussing exposure to gold, financial planners caution against rushing in, suggesting that the current valuation still poses a risk for near-term returns.
Nikhil Kothari, from Etica Wealth Investors, offers a measured view, stating clearly that “from a valuation perspective, gold is not cheap.” He notes that current prices despite the dip, have remained inflated by strong institutional demand.
"From the short term perspective, due to the central bank buying, there is huge demand. The price has run up." Looking ahead, however, Kothari warns that market fundamentals will eventually override any temporary strength or momentum in the commodity price. In the long term, the fundamentals overpowers the momentum, he said.
Given the elevated cost, he believes a price correction is inevitable. “Since valuations are expensive, there will be some time correction,” he added.
Kothari strongly advises current investors to avoid increasing their allocation at these levels. "Now we do not recommend trying to add to the gold exposure," he said. He suggests that investors with an existing exposure of "only 3-4% then only maintain that." His overall message is clear, "Gold is still very expensive valuation so hold the exposure that you have."
Echoing the call for patience, Mohit Gang, co-founder of MoneyFront, attributes the market pause to the recent, rapid price surge.
"Gold had risen very high, very soon. So some amount of consolidation is bound to happen," he explains. Gang suggests this cooling-off period is already underway as "geo-political tensions are easing that are easing to a cool down."
He expects this phase to "last a while" and advises investors to buy gradually, rather than quickly. Gang calls for gradually purchasing during dips, noting, "These levels are still high."
He concludes that "a little bit of buying the dips are recommended because the long term view of the asset remains good," confirming gold's enduring role in diversification. This will always merit in asset allocation. A little bit more consolidation is likely, he added.
