Systematic investment in gold a good option for a likely volatile 2019

As domestic and global uncertainties threaten to keep equity markets volatile in 2019, investors tend to move towards gold. But will the yellow metal provide stability to your portfolio during market uncertainties arising out of weakness in markets, uncertainty over the upcoming Lok Sabha elections in the country, and global tensions including trade tussle between the US and China?

Commodity experts believe gold could be a good investment bet for the year and is likely to emerge as one of the best-performing commodities. “Gold will be one of the top commodities in 2019 especially in the backdrop of the weakness seen in equity markets. Since equities have been a loss-making asset in 2018, gold is likely to see ‘safe haven’ buying in the coming year,” said Hareesh V, head, Commodities Research, Geojit Financial Services.

Hareesh pointed out gold prices had been subdued for an extended period and it could be the time to move up. “Gold has been subdued for nearly five years now. It is time for the commodity cycle to break,” he said. Gnanasekar Thiagarajan, director, Commtrendz Research, agrees. “Gold has remained flat for the last few years. It is time for it to take off,” he said.

On December 31, the February futures contract in gold was trading in the Rs 31,575 region while in the global market the yellow metal was around $1,278. Gold prices had seen downward pressure since April 2018 and slid to around $1,160 in August as the dollar gained strength against other currencies. However, it recovered towards the latter part of 2018 and ended the year with a modest yearly loss. Hareesh sees gold at substantially higher levels in 2019. “$1,370-1,380 will be a major level. If that is broken, gold can move up to $1,500 or even higher,” he said.

Factors that will impact gold: The World Gold Council (WGC) feels that factors that drove gold in the second half of 2018 would continue to hold sway over the market in 2019.

“Physical buyers, whether in China or India, which together make up half of the consumer demand for gold, should be solid, bolstered by good growth in these two important economies,” the WGC said in a report.

It said central banks which collectively bought gold were widely expected to continue purchases next year. “It’s possible that additional central banks will join the list of buyers, as seen in 2018. All of these sources of demand are not only relevant to gold’s performance next year but also underpin its long-term performance. The most important component for near-term price performance, however, will be linked to the activity of investors — whether driven by strategic or tactical reasons,” the WGC said. Besides these, the strength of the US currency will have an impact on gold prices. “Two critical factors that have exerted the greatest selling pressure in gold have been the strong US dollar and the Federal Reserve’s current monetary policy of quantitative normalisation, resulting in gold dipping below the $1,200 an ounce levels in mid-2018,” Chirag Mehta, senior fund manager, Alternative Investments, Quantum Mutual Fund, said in a report.

However, Hareesh V says the US Federal Reserve is unlikely to go in for rapid rate hikes in 2019, which will help gold. “The Federal Reserve may not hike rates as many times as it did in 2018. This will be a positive signal. Also, the continuing US-China trade tussle may be a factor leading to gold gaining strength,” he said.

How to approach gold investing? Most personal finance advisors suggest an 8-10 per cent allocation towards gold in their portfolio as a hedge against risk assets such as equities. “When risk assets become riskier (such as in current times), hard assets like gold typically tend to gain,” Thiagarajan said. The yellow metal can help diversify your portfolio and minimise risks arising out of domestic and global events. However, investors should ideally adopt a systematic approach towards investing to ensure cost-averaging of their holding. “Investors should ideally buy gold systematically every month,” Hareesh said.