For generations, Indian households have been buying gold because it is considered a safe investment. Gold prices rise even during a crisis, like a market turmoil or an economic slowdown. How does that happen?
Gold prices touched an all-time high of Rs 60,450 per 10 grams in India. "The insane gold rally demonstrates that more people are turning to gold as a store of value as the banking credit crisis worsens in the US and Europe, where Credit Suisse Group, one of the most recognisable names in global investment banking, has been forced to seek assistance from Switzerland's central bank," says Prithviraj Kothari, MD and CEO of RiddhiSiddhi Bullions Limited (RSBL).
Gold As A Safe Haven
Whenever there is market turmoil, especially in our financial system and banking sector, which leads to market volatility, people seek safe havens. "Gold is arguably the most well-known safe haven in the world. It's one of the best assets available, with no counterparty or credit risk. In other words, unlike a bank, gold cannot go bankrupt, which is very appealing at this point," adds Kothari.
It has been observed that gold and equity markets have an inverse correlation. This means that gold prices go up when markets fall because people tend to move their money from equity to gold. However, the opposite is also true.
Looking Ahead
"Gold has recently touched the $2000/oz mark in the international market and lifetime highs of Rs 60,000/10 gms in the Indian markets, and if the global uncertainty continues, the momentum in gold will continue further towards Rs 62000/10 gms mark and $2100/oz mark in the near future," says Prathamesh Mallya, assistant vice president (AVP) of research, non-agri commodities, and currencies, at Angel One.
The US Fed meeting was due to start later on Wednesday, and an interest rate decision is expected by Thursday, which could provide a new direction to prices. Any indication of a pause in interest rate hikes by the Fed could push gold even higher amid signs of softening inflation globally.
"However, we expect gold to remain highly volatile in the short-term scenario with dips of four to five per cent in prices from current levels to be considered a long-term buying opportunity," says Maneesh Sharma, assistant vice president (AVP), commodity & currency (fundamental research), Anand Rathi Shares and Stock Brokers.
Thus, the yellow metal is set to shine in the coming months, and investors should hold at least 10 per cent of their portfolio in gold.
