Gold and silver prices have reached record levels in the international market. Gold recently crossed the psychological $ 4,000 a troy ounce mark gaining nearly 50 percent since the start of the year. Silver is testing $ 50/oz with nearly similar gains. The market has turned volatile.

Multiple factors are cited as gold market drivers including geopolitical instabilities; economic uncertainties; central bank buying; Fed rate cut expectations; ETF inflows; US Dollar weakness and so on.

The fact of the matter is, massive amount of speculative capital is currently driving the market up and exerting an exaggerated price effect. Many fear the situation is now akin to a bubble. In other words, there is too much of speculative lather.

By its very nature, speculative capital is fickle. It has no commitment to any specific investment. It can enter and exit the market anytime on a large scale and it is done by large institutional traders at the touch of a button through algo trading. It is time for retail investors to exercise utmost caution as they don’t have the luxury of algo trading. 

October 6 to 11, the market observed the annual ‘Investor Awareness Week’ where the main theme was investor education and protection. While it is easy for anyone to enter the derivatives market and place bets, exit strategy is crucial to ensure the investment objective is achieved. From that perspective, it would make commercial sense for retail investors to book profit and exit the market so that their capital remains intact.

According to technical analysts, the charts suggest a small further upside for the yellow metal towards $ 4100/oz; but it would be unwise to wait for the top. As they say in the market, nobody sells at the highest price and nobody buys at the lowest price.

Despite large imports, India is a gold price-taker and not a price-setter. Our domestic market reflects international prices. Recently, price crossed Rs 1.20 lakhs per 10 grams, a new high. Rupee weakness is adding to the cost of imported gold. At the same time, anecdotal reports suggest that physical demand has turned weak in the wake of high prices.

In case of silver, it is clear that the world market is in a state of deficit for the fifth year in a row. Silver is not only a precious metal but an industrial metal too with applications in electrical and electronics, photovoltaics and e-mobility.

Silver rates have reached the highest level since 2011. Gold and silver markets generally move in tandem with silver showing higher volatility. When gold corrects, silver too will fall. In the domestic market silver recently breached the Rs 1.5 lakhs per kilogram mark.

The perception that gold is a safe-haven asset is correct, but it is contextual and valid for a certain set of conditions. The conditions can change; but what would trigger a change in conditions and when is unclear as of now. We need to wait and watch. Meanwhile, investors have to protect their wealth by trading cautiously and avoiding reckless investment without a clear exit strategy.