Indians have always considered gold as a safe investment to bank upon in tough times. With gold prices on the rise, is this the right time to invest in the precious metal? What are the options? Let’s take a look
Indians love gold and have always looked at the precious metal as a safe investment they can bank upon in hard times. Gold prices have been on an upswing recently and have reached record prices. At present, the price of 10 gram 24 karat gold is Rs 58,730.00 in Mumbai.
Says Ajit Mishra, vice president and senior technical analyst, Religare Broking, a broking firm in India: “Gold has been marching northwards for the last three successive months, tracking a decline in the dollar index, softening of the bond yields, and the expectations of a less aggressive stance from the US Federal Reserve amid the fear of a recession. Besides, the expectation of improvement in demand outlook with the reopening of China and buying by central banks further boosted the sentiment.”
Adds Prithviraj Kothari, managing director of RiddiSiddhi Bullions Limited (RSBL), a gold and silver trading company: “In the last three months, as investors have fled from the dollar in anticipation of the Federal Reserve raising interest rates more slowly than expected, gold has benefited from rising concerns about a global recession.”
Increased interest rates normally affect gold adversely, since it is an interest-free investment.
However, when interest rates decrease, gold rates tend to increase, as the opportunity cost to hold gold is lower as compared to other investments. That said, the relation between interest rates and gold prices is uncertain.
Vipin Jindal, assistant vice president and sector head, corporate ratings, ICRA Limited, a credit rating agency, said that the recent rally in gold prices has been on the back of expectations of lower interest rate hikes.
“While rising gold prices could be a dampener in terms of volume growth for the Indian gold retail industry, ICRA expects the overall industry to record an approximately 15 per cent growth year-on-year (y-o-y) in FY2023 in value terms, with demand being supported by strong cultural affinity and pent-up demand from previous years. A high base effect could, however, moderate the growth rate in value terms to around five per cent in FY2024,” he says.
Impact Of Fed Meeting: The Federal Reserve is expected to increase interest rates by 25 basis points. However, given that recent data has presented a somewhat mixed picture of the US economy, the US central bank’s stance on future rate hikes will be closely observed.
“Any hawkish signals from the central bank are likely to be negative for gold, while a dovish signal is likely to be positive for gold,” says Kothari.
What Should You Do: According to Mishra, investors should stay for long and utilise any dip to add freshness as it could see some consolidation after the phenomenal surge.
“Any dip below 56,600 may result in further profit-taking to the 56,200-56,400 zone, and the 57,200-57,500 zone might act as a hurdle,” says Mishra.
“In the last three months, gold prices have run up too fast, so we could see some profit booking as prices are in the overbought zone. We could see a healthy correction of 1,500-2,000 points; thereafter it will be a good opportunity to invest in gold,” says Kothari.
Kothari, however, adds that it is difficult to precisely time the bottom of the gold market for investment, as gold prices are very volatile. So, the best way to stay invested in gold is through gold systematic investment plans (SIPs), where one gets a chance to average out the cost at different prices.