Gold prices hit record highs after US Fed's 50 bps rate cut. Check the reasons, future expectations and how to invest in gold.
The price of gold rose sharply after the US Fed cut interest rates by 50 bps this week. On Friday, it reached $2,625 per ounce and Rs 4,014 per 10 grams on the Multi Commodity Exchange (MCX). Experts predict a continued increase due to a potential two more rate cuts in 2024. They recommend buying gold during price drops as the MCX gold rate is likely to face resistance at Rs 74,500, and some profit bookings can happen at this level.
Gold Prices Are Rising; How To Invest in Gold?
Gold has been climbing the price ladder since Q4 2023, gaining over 27 per cent year-to-date. The recent rate cut by the US Federal Reserve has sparked renewed interest in gold as an investment. In addition, factors such as a weakening dollar, tensions in the Middle East, and increased investments in global gold exchange-traded funds (ETFs) have also contributed to the surge in gold prices. Global gold ETFs experienced inflows for four consecutive months, with all regions reporting positive flows and Western funds leading the way.
Also, experts believe this bullish trend in gold will continue due to geopolitical tensions, lower real interest rates, and continued buying of gold by central banks. However, it's important to note that a fall in government bond yields may also impact gold prices, as it can increase interest in gold as an alternative to capital preservation. However, Livemint cited Alex Kuptsikevich, senior market analyst at FxPro, saying that this inverse correlation doesn't work every time. "It worked well last year but has started to fail this year and broke down this week when gold prices and yields started to rise simultaneously. If this is not a sign of a flight from dollar assets, gold may be nearing a peak," he said.
Gold significantly outperformed both the Nifty and the S&P Sensex in terms of returns in 2024. Gold's one-year return was 36.57 per cent, beating the Nifty and Sensex returns, which stood at around 30 and 27 per cent, respectively.
The bullish trend in gold prices has continued steadily since 2022, with gold breaching many historical records since mid-February. Central banks worldwide have been increasing their gold reserves to manage currency fluctuations, so this surge is expected to continue.
Geopolitical tensions over the Russia-Ukraine war, potential Israel-Iran conflict and upcoming national elections in countries like the United States may drive investors toward safe investments like gold. Experts suggest investing 5 to 10 per cent in gold for conservative investors, especially for portfolio diversification, so they can wait for geopolitical tensions to cool down for a price correction in gold. Options to invest in gold include sovereign gold bonds (SGBs), digital gold, gold futures, gold exchange-traded funds (ETFs), and gold fund of funds (FoFs).