Although the performance of gold has not been appealing in the past 4 years, the prospects for a sustained price rally are better than they have been for years.
Gold has been the favorite asset class for investors for decades and this attachment towards the commodity comes irrespective of the high/low price, or returns in the asset class. This asset class thoroughly has a place in the investor’s portfolio from a diversification perspective.
Global Factors Affecting Gold
In 2018 YTD, spot gold prices in the international markets have risen by around 3.5 per cent while MCX gold prices have gained by around 7.5 per cent in the same time-frame as rupee weakness of around 2.8 per cent supported the rally in domestic markets. The year 2018 has been full of uncertainties with the US President Trump and his radical government policies, weak dollar, the possibility of further rate hikes in 2018; US attack on Syria in response to its chemical weapons etc. Gold no doubt enjoys all these uncertainties which makes investors flight towards the safe haven asset.
Is This A Good Time To Buy Gold?
Although the performance of gold has not been appealing in the past 4 years, the prospects for a sustained price rally are better than they have been for years as geo-political concerns and weak dollar and uncertainty about the global economy have revived gold’s safe-haven status.
In the immediate-term, support to gold prices will be seen especially as prices in the Indian markets could stabilize or even increase further. This is due to the traditional Akshaya Tritiya demand, during which investors and retail consumers in India prefer to make gold purchases (irrespective of the price) due to the auspicious sentiment attached to it. Hence we advise our investors to buy gold on the occasion of Akshaya Tritiya for sustained price rally in the near term.
However, our advice to investors would be to buy gold in a staggered manner rather than concentrate all your purchases at one go. One should take the benefit of value cost averaging to invest in gold. Accumulation points for gold would be around Rs 29000 mark while the current market price of around Rs 31300 is high. Smaller purchases like coins or even small jewellry can be bought at the current market prices.
The upside potential for gold can be seen at around Rs 32500 mark. However, this will remain the cautious point for investors.
(By Prathamesh Mallya, Chief Analyst, Non-Agri Commodities and Currencies, Angel Broking)