Gold hits all-time high, soars past Rs 71,000: Should you still invest?

Is it the global uncertainty? Or the belief that the Federal Reserve will soon start bringing down the rates? Or the wedding season back home? Analysts may spar on the reasons, but they agree on one thing that the price of gold has touched an all-time high of Rs 71,652 per gram on the multi-commodity exchange.

 

Why is gold touching new heights?  

Safe investment option: During periods of economic uncertainty or geopolitical turmoil, gold serves as a safe haven for investors seeking stability. 

 

Rising inflation: Gold is often viewed as a hedge against inflation. As the value of fiat currencies diminishes due to inflationary pressures, the relative worth of gold tends to increase. This makes it an attractive option for preserving wealth amid rising consumer prices.

 

Global tensions: Geopolitical conflicts are contributing to market instability, prompting investors to flock to assets perceived as safe, such as gold. The metal’s reputation for retaining its value during times of geopolitical uncertainty further bolsters its appeal.

 

The Chinese factor: Gold demand in China has been on the rise. The Chinese central bank has been adding a substantial quantity of gold to its reserves which is leading to the increase in the gold price in the US and also in India.

 

Low interest rates: When interest rates are low, the opportunity cost of holding gold decreases, leading to increased demand and higher prices.

 

Talking to Business Standard, Palka Arora Chopra, Director, Master Capital Services said, “Gold is regarded as a safe haven in India. The Q1FY25 might witness subdued consumer demand for gold due to restrictions on its movement during the Lok Sabha elections.

 

Geopolitical tensions, ongoing conflicts, and a pessimistic economic outlook, combined with uncertainties regarding Federal Reserve rate adjustments, have led to a sudden spike in gold prices. Bullion rates have surged by 14% since March. Notably, the Reserve Bank of India (RBI) made a significant gold purchase of 8.7 tonnes in January, its highest acquisition in two years. Our analysts anticipate a bullish trajectory for gold prices in India in the medium to long term, considering these prevailing conditions.”

 

Should you buy gold now?

 

Higher gold prices may reduce the purchasing power of consumers. However, gold is a popular purchase, especially for festivals and weddings. Making the decision to invest in gold amidst rising prices requires a balance between market dynamics and mitigating risks. It is very crucial to assess the purpose of your investment and explore alternative avenues. For instance, if the intent is to purchase gold for special occasions like weddings or festivals, an immediate purchase might be required. However, if the goal is purely investment-driven, remaining patient until prices stabilise could be prudent.

 

Manav Modi, analyst at Commodity and Currency, MOFSL told Business Standard, “Looking ahead, in order to obtain further insight into the direction of inflation and overall economy, the focus will remain on data from the US and other major economies.

 

 

 

Fed officials have been actively preparing the market since the start of this year, hence their commentary will be important to keep an eye on. Geo-political tensions have built the risk premium in the market, if we see any development in the same that could further add gains for both Gold and Silver. Change in rate cut expectations have increased volatility in Dollar Index and US Yields, going ahead how this impacts bullion will also be important to watch. We recently achieved our annual target of Rs. 69000 on domestic front and $2260 on Comex. After a vertical rally seen recently, we could maintain caution as some profit booking could be seen from the higher side. Overall trend for Gold is still positive and we could continue to accumulate on dips towards Rs 70,000 for the targets of Rs 72,800 in the near term.”

 

 

You should keep in mind that timing the market is challenging right now. A rising market may continue its journey, but it could also face corrections. Stay vigilant regarding economic indicators and global developments that could influence gold prices.