- Gold may have lost some of its shine over the past six months, but it still outperformed most other asset classes in 2022.
- The yellow metal rose sharply in March but quickly cooled as the US Dollar continued its bullish trajectory.
- According to commodity experts, investors with a long-term view of gold can start hoarding gold. If the dollar weakens,
gold price could rebound from current levels.
Gold has always been considered a hedge against inflation, but this theory was truly tested in 2022. As inflation raged throughout the year, gold prices fell for six straight months through September, with the greenback continuing to strengthen along with bonds. yields. The yellow metal rose sharply in March, but quickly cooled as the US Dollar continued its bullish trajectory.
While the long-term triggers for gold are intact, the outlook for the precious metal remains uncertain thanks to the unprecedented rise in the US Dollar. According to the World Gold Council’s Market Commentary Report for September: “The rising US dollar has been a major headwind for many assets in 2022 and we believe its trajectory for the rest of the year will be a key determinant of fortune in gold. But the dollar faces its own challenges. Rising interest rates, usually another hurdle for gold, appear to be less important to investors today than they were in the first half of the year.
Gold may have lost some of its luster over the past six months, but it has still outperformed most other asset classes, experts say. According to Chirag Mehta and Ghazal Jain of Quantum Asset Management Company, “Gold has given returns of around 7% since the start of Samvat 2078 (November 5, 2021). This is an excellent performance compared to stocks The Nifty50 index generated a return of around -4%, while bond returns were almost flat according to the Crisil Composite Bond fund index, so gold once again made its mark. evidence in the portfolio by protecting capital and being an effective diversifier.
So should you buy gold this Dhanteras? Gold bulls say yes as the world heads for more uncertainty. With interest rates rising and growth slowing in major global economies, commodity experts believe now is the right time to buy gold as the asset class tends to do well. behave in a stagflationary environment. While gold may still make sense from an investment perspective, demand for gold jewelry may remain subdued this year as inflation may dampen discretionary spending.
Somasundaram PR, Regional CEO, India, World Gold Council, explains, “With the recent correction in local gold prices and a favorable monsoon, the festive sentiment among retail consumers appears to be positive. inflation on household finances could have an immediate impact on the demand for gold jewelry.
Indians remain bullish on gold
India is one of the biggest consumers of gold in the world. And it also remained a favorite investment class for many Indians. According to Anarock Research, gold has remained one of the preferred investments for Indian households due to its liquidity and flexibility in terms of investment size. A report by Anarock states: “Stocks are highly volatile and easily impacted by social, political and economic upheavals. Real estate, always considered a long-term investment, gives stability to the portfolio and appreciates over time. The physical nature of the asset, unlike stocks, also ensures limited erosion of wealth.
What could drive gold prices in the future?
Gold could rebound if the dollar weakens from its 20-year high. Typically, a 1% decline in the dollar, all other things being constant, is associated with a 0.88% rise in gold. Hypothetically, according to the World Gold Council’s Market Commentary Report, a full unwind of the DXY, or dollar index, year-to-date performance would imply a 13% rise in gold. Any dollar weakness would also trigger a rally in risk assets, which would be positive for gold.
In India, demand for the yellow metal rose briefly in September and is also expected to hold steady in October. If prices continue to correct globally, buyers may increase the allocation to gold.
According to commodity experts, investors with a long view of gold can start hoarding gold, but those with a short view can wait for further corrections. Rahul Kalantri, Vice President of Commodities at Mehta Equities, explains: “Gold looks volatile in the coming days and could be under pressure due to the Fed hangover. In the domestic market, gold will have good support due to demand from festivals.
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