If US interest rates are not significantly lowered and the country’s economy continues to grow faster than anticipated, SIP the yellow metal could struggle.
The price of gold, which is currently selling at Rs 2,689.6 per ounce on the Comex after closing at Rs 75,447 per 10 grams on the domestic market, has increased by 29.4% in the last year. According to experts, the yellow metal may rise much higher over the next six to twelve months if the fundamentals hold steady.
Reduced Rates Are A Major Motivator.
The United States Federal Reserve (US Fed) recently lowered interest rates by 50 basis points (bps), which has given the yellow metal additional momentum. Real interest rates are negatively correlated with gold. “Thereafter, gold prices ought to be supported by a decrease in interest rates that is greater than a decrease in inflation. More investors are moving into gold as the opportunity cost decreases with a reduction in real interest rates, according to Chirag Mehta, chief investment officer of Quantum Mutual Fund.
For the next six to twelve months, the US Federal Reserve may reduce interest rates more frequently, which would raise the price of yellow metal.
Geopolitical tensions – the conflict in West Asia and the war in Russia-Ukraine – do not appear to be going away. “Investors look to this safe-haven asset in such an environment,” says Prabhudas Lilladher Wealth Management’s chief business officer, Shashank Pal.
Central Banks Shift Composition Of Their Reserves
Central banks have been shifting the composition of their reserves from US dollars to gold. The majority of significant economies have recently increased their gold holdings. One of the biggest buyers of gold, China, stopped buying in May. The price of gold will rise if the People’s Bank of China starts making purchases again, according to Deveya Gaglani, senior research analyst for commodities at Axis Securities.
Domestic gold demand has been greatly boosted by the large reduction in import duties on gold that India implemented in late July. In their most recent report, the World Gold Council states that “anecdotal reports suggest that strong buying interest from jewelers as well as consumers followed the duty reduction.”
The price of gold is probably going to rise as long as these factors remain in place. According to Gaglani, “gold’s price may rise by 4-5 percent in the next 6-8 months with the growing likelihood of an additional 50 bps Fed rate cut.” He anticipates that the price on the Comex would reach $2,850 per ounce, and the domestic price will reach Rs 80,000 every 10 grams.
A Strong Dollar Index Could Prevent An Increase
If the US economy continues to grow faster than anticipated and interest rates are not significantly reduced, the yellow metal may struggle. Since the two have an inverse relationship, a higher dollar index may exert pressure on gold prices. Positive indicators of the US economy, such as GDP growth, consumer confidence, and non-farm payroll data, can lower the demand for gold, according to Gaglani.
Mehta says there may be short-term volatility even though the long-term prognosis for gold is still favorable.
Approach From A Long-Term Viewpoint.
A 10-15% portion of a retail investor’s portfolio should be allocated to gold through products like gold fund of funds and exchange-traded funds (ETFs) (FoFs). Mehta states that a portfolio’s exposure to gold of 10–15% lowers risk without sacrificing possible rewards.
Avoid making lump-sum investments in light of the current surge. “You should methodically invest in gold over the long run. In times of underperformance, this offers a chance to invest at cheaper levels, according to Gaglani.
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