Are gold prices likely to rise?

After several months of rallying, gold prices in the country have recently corrected, albeit marginally. After mid-May, when spot prices were hovering around the 28,000 per 10 g mark, gold prices got a booster shot from the depreciating rupee and crossed the 32,000 mark in mid-September, despite a fall in international gold prices. The prices in the country continued on their upward trajectory, mainly due to the sharp depreciation of the rupee against the dollar. However, prices have declined since then as the rupee has witnessed a turnaround over the past few weeks. 

What lies in store for gold? 
Central banks across the world are still experimenting with stimulus measures to prop up their respective economies. Such actions will result in currencies losing value and, consequently, add lustre to gold. For instance, the European Central Bank has promised to buy an unlimited quantum of Euro bonds in the future. Chirag Mehta, fund manager, Quantum Gold Fund, says, "As global central banks continue to debase their respective currencies, the inevitable consequence will be higher prices of gold, which will merely reflect the diminishing purchasing power of the global fiat currencies." 
Risks remain 
There appears to be no respite from the global economic uncertainties. Even though fears over Europe's debt contagion have eased for now, the risk of a blowout remains. The US economy continues to grapple with a persistent slowdown, while China is witnessing a decline in growth. All this should bode well for gold, believes Raviprakash Sharma, fund manager, SBI gold fund. "The fundamental drivers for higher gold prices still remain in place and make a case for portfolio allocation towards the asset class," he adds. 
    However, the rupee will play a crucial role in how gold prices move in the domestic market. Lalit Nambiar, fund manager, UTI Gold ETF, says, "It is tough to predict but the rupee is likely to hold at these levels for some time. A slight depreciation in the rupee and pick-up in gold buying will help push gold prices higher." Renisha Chainani, commodity analyst, capital markets, Edelweiss Financial Services, says, "The recent consolidation in gold prices is healthy in the context of a sustained bull market. Investors should consider every dip as a buying opportunity."