Akshaya Tritiya is considered as an auspicious day symbolizing prosperity and good luck. It is said that an investment made on this day gives favorable returns, thus making it popular for buying gold and other precious assets.

Gold yield stands at 15% this year

“The year 2023 proved to be a fruitful journey for precious metals, notably gold, which saw gains of approximately 15% in the domestic bourses. The market dynamics witnessed a blend of geopolitical tensions, central bank maneuvers, fluctuations in the dollar index, and shifts in US yields. In continuation to the trend, MCX gold surged by 12.50%, slightly outpacing spot Comex gold, which stood at 12.20% in calendar year so far,” according to Religare Broking.

The preceding years have witnessed a succession of unexpected occurrences stemming from the pandemic, as well as flashpoints such as the Russia-Ukraine conflict and the Israel-Hamas tensions, alongside debt crises. These events have perpetuated a prevailing sense of risk within the market. A noteworthy trend has emerged as central banks worldwide have notably increased their gold purchases, acquiring 1,037 tonnes in 2023. This figure falls just shy of the record set in 2022, which stood at 1,082 tonnes.

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Global factors impacting gold prices

The future of gold remains dynamic, shaped by various global factors such as central bank policies, geopolitical scenario, and economic indicators. While the gains seen in the current year are commendable, the historical trend of higher returns during turbulent periods highlights gold’s potential to flourish amidst heightened uncertainty.

Religare Broking highlights the reasons that position gold as an appealing investment option for the year ahead.

Fed monetary policy:

The Federal Reserve has maintained a relatively restrictive stance on monetary policy throughout the current fiscal year, keeping interest rates unchanged at 5.25-5.50% for the sixth consecutive meeting. Recent disappointments in US job data, combined with the central bank’s leaning towards easing, have reinforced expectations of rate cuts by year-end. Investors now anticipate only one rate cut for the year. Given gold’s traditional role as a hedge against inflation, it is expected to remain attractive for investments in the coming months.

Geopolitical tensions:

For year 2024, the geo-political tensions mainly appear confined over the Gaza war’s regional impact, Syria’s rehabilitation with Hezbollah in the north and Hamas in the south, supported by Iran. Tensions persist between Israel and the wider Arab nations, and the possibility of the Ukraine-Russia conflicts to linger citing the recent attacks by Russia in the gas pipelines of Ukraine, for supplying to the European Union markets. In short, there are no indications that these tensions shall be over soon.

Increasing geopolitical tensions might create new problems for the world economy. As per the IMF, global inflation is forecast to decline steadily from 6.8% in 2023 to 5.9% in 2024 and 4.5% in 2025. Meanwhile, declining growth will ultimately benefit gold prices as the safe-haven demand for bullion comes in action during turbulence time.

Demand from central banks:

Central banks have long seen gold as a crucial part of their financial reserves, adding it for diversification as they manage domestic currencies. In 2023, they bought 1,037 tonnes globally, slightly less than the 1,082 tonnes in 2022, the highest since 1967. Currently, central banks hold about 20% of global gold production, with one-third acquired in 2023 alone. In Q1 2024, central banks acquired nearly 290 tonnes, surpassing the previous year’s record, with China leading followed by Turkey and India. This strong start indicates continued robust demand for gold in 2024.

Gold investment demand:

The World Gold Council’s Q1 2024 report highlights a 3% increase in global gold demand, totaling 1,238 tonnes, the strongest first quarter since 2016. This growth was mainly driven by robust over-the-counter (OTC) market investments and consistent central bank purchases. Bar and coin demand also saw a 3% rise. However, excluding OTC transactions, demand dipped by 5% to 1,102 tonnes in Q1 2024 compared to the same period last year.

In 2023, ETF outflows and a slight decrease in bar and coin demand led to a total annual gold investment decline to a 10-year low of 945 tonnes, dropping by 244 tonnes from the previous year. Moreover, Q1 2024 witnessed a global gold ETF holdings decrease of 114 tonnes. Asia, notably China, saw growth in gold-backed ETF holdings in 2023, driven by global geopolitical tensions, declining dollar index, US bond yields, and uncertainty regarding future rate cuts by the Federal Reserve.

How soon can gold cross Rs 1 lakh mark?

On last Akshaya Tritiya, 24-carat gold traded Rs 61,300 per 10 grams in the national capital. On this Akshaya Tritiya, the price of the yellow metal is Rs 73,238 per 10 grams level, giving about 20% return to investors. In the last six months, the precious metal has surged by about 18%. Year-to-date, the gold price has risen by nearly 12%.

In view of the current rally and outlook for the coming months, gold may cross the milestone of Rs 1 lakh mark by next Akshaya Tritiya. To reach Rs 1 lakh level by next Akshaya Tritiya, it has to deliver a return of about 38% over the next 12 months.