As central banks hike rates, should you short gold?

New Delhi: Gold prices have been on a downtrend as rising interest rates are pushing the bond yields higher, diminishing the appeal of the yellow metal.

After hitting a peak of Rs 53,600 on April 18, the yellow metal has dropped about Rs 2,000 per 10 grams in the domestic market. However, gold has not managed to hold the Rs 51,000 mark so far.

Amid a rising inflationary environment, investors are confused if they should buy the bullion, which is a hedge against elevated prices or short gold amid aggressive rate hike expectations.

NS Ramaswamy, Head of Commodities,

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

On the contrary, Tapan Patel, Senior Analyst – Commodities, HDFC Securities believes that it is too early to take a call on whether shorting gold is a good


The hawkish stance from the US Federal Reserve and further rate hike fears are hurting the market. This is getting quelled by the US inflation growing at its fastest pace in more than four decades.

Patel from Securities said gold prices in India will have a limited impact on the recent rate hike from the RBI as the has taken an advance step ahead of a key event of the US Fed‘s rate decision.

“The rupee has reacted sharply post surprise rate hike announcement, paring some early gains while India bond yields have stabilized near 7.38 per cent. The weaker rupee will limit downside in gold for the near term,” he added.

Gold is a pure non-yielding asset class as it does not generate any income by itself. The price movement in the yellow metal is the only way to make money from it.

“The opportunity cost of owning gold is rising,” said Ramaswamy. “Higher interest rates by themselves aren’t the only bearish factor. Stock market movements and bullish US Dollar index is also an influencing factor.”

Even the technical charts indicate the yellow metal could fall to Rs 49,900 in the near term, whereas on an extreme bearish note, it can drop down to Rs 49,000, Ramaswamy said.

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