Gold has always been an intriguing investment option for individuals looking to diversify their portfolio and hedge against market uncertainties. In recent years, the price of gold in India has seen significant fluctuations, prompting investors to seek strategies for optimal entry points. In this article, I will discuss a simple yet effective way to analyse the gold trajectory by using the Gold INR chart.
Understanding the Gold INR Chart
To create the Gold INR chart, I’ve employed a straightforward methodology. Firstly, I multiplied the price of gold with the USDINR exchange rate to determine the dollar gold price in India. Next, I considered a 15% taxation on top of profit for accurate calculation. Since the typical dollar gold price is measured in troy ounces, which is approximately 31.103 grams, I divided the derived price by this weight to obtain the price per gram.
You may simply past the below formula on trading view search bar to arrive at this chart
Historical Trends in Gold Prices
Over the last few decades, gold prices in India have experienced a significant upward movement. Starting at Rs 400 per gram, the price has skyrocketed to Rs 5721 per gram, experiencing double-digit compound annual growth rates (CAGR).
By utilising simple technical indicators, investors can potentially make informed decisions regarding the entry and allocation of their investment portfolios.
Using the 200 Week Moving Average
One of the indicators that can effectively guide investors is the 200-week moving average. When gold prices fall below this moving average, it indicates a potentially oversold position, making it an ideal time to buy for long-term investment purposes. Historical analysis demonstrates that there have only been limited instances in the past 50 years where gold prices dipped below the 200-week moving average, emphasising the strength of this indicator.
Using the Relative Strength Index
To further refine our analysis, we can incorporate the Relative Strength Index (RSI), which measures the magnitude and speed of price movements. By examining the RSI on a 14-week timeframe, we can identify periods when gold prices are not below the 200-week moving average but remain oversold. These instances present opportunities to allocate additional funds to gold investments.
In the past six to seven years, several instances have occurred where gold prices were not below the 200-week moving average but still exhibited oversold conditions according to the RSI. By setting a threshold of 40 on the RSI scale as a signal for oversold conditions, investors could have identified favourable entry points in August 2018, March 2021, and September 2022, amongst others. These instances of high probability, combined with the overall trend of rising gold prices, offer investors potential opportunities to optimise their entry points.
To achieve better entries for asset allocation, investors can employ overlay strategies that incorporate technical indicators. By utilising the 200-week moving average and RSI as discussed earlier, investors can iteratively refine their entry points, leveraging the probabilities associated with oversold conditions. This approach offers investors a higher likelihood of entering the market at opportune moments, potentially maximizing returns over the long term.
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