You may have noticed the recent decline in the price of gold. In this article, we will try to provide you with valuable insights into the status of gold from the perspective of price and why it may be a good time to allocate to gold.
Let us understand this chart !
To begin, let’s understand how the price of gold in Indian Rupees (INR) is derived. The chart below represents the derived price of gold in INR. This is calculated by taking the gold price in US dollars (USD), multiplying it with the USD to INR exchange rate, and adding the 15% import duty. The resulting price is per ounce, but to convert it into grams, you need to divide it by 31.103.
Here’s the exact code if you wish to plot it on trading view TVC:GOLDFX_IDC:USDINR1.15/31.103
Now that we have clarified the calculation, let’s delve into the recent trends.
Now that we have clarified the calculation, let’s delve into the recent trends Over the past few sessions, the dollar index has been rising rapidly. As a result, the price of gold in dollar terms has collapsed. Looking at the 14-day Relative Strength Index (RSI) on the daily gold chart, we can observe that it has reached a low of 20. This indicates an extremely oversold position for gold.
Can we expect a bounce now ?
It is worth mentioning that an oversold position, such as the one we are currently witnessing, does not guarantee an immediate bounce-back. There is still a possibility that gold prices may decline further. However, historical patterns suggest that these extreme oversold positions on a daily basis often precede an immediate bounce in the gold market.
To put things into perspective, the last time gold was this oversold on a daily basis was back in 2016. Prior to that, similar instances occurred in July 2015 and April 2013. In the last decade, there have been only three or four such cases of gold being so oversold. This indicates that the current situation is relatively rare and may present an opportunity for investors.
It is important to note that we view gold as an allocation rather than a trading instrument. Allocating gold can help diversify your investment portfolio and act as a hedge against economic uncertainties. While timing the market is not always recommended, now could be a favorable time to initiate or further increase your allocation to gold.
GOLD – A Safe Haven !
Considering the oversold position of gold, it may be a prudent decision to start allocating to gold if you haven’t already. This is especially relevant for long-term investors who are seeking to protect their wealth and add stability to their portfolio. Gold has historically been viewed as a safe haven asset during times of economic volatility, making it an attractive option for investors looking for stability and preservation of capital.
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