Gold march inexorable: Buy in dips for three months, say experts

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Though gold prices shot up by 12% in FY24 and show no sign of fatigue even the first seven weeks of the current financial years, experts suggest that the march of the yellow metal will continue inexorably supported by a few global factors and investors could seriously consider investing in it, several pundits have told The Economic Times.

The continuous impetus to gold prices are coming from central banks in many emerging markets aggressively buying the metal, the near certainty of the US Fed holding interest rates in the medium term and the geopolitical tensions in West Asia.

“Investors could increase their allocation to gold from 8-10% to 10-15%, over the next three months, given the positive outlook for gold,” fund manager – commodities at Tata Asset Management, Tapan Patel, told the newspaper.

Ghazal Jain, fund manager at Quantum Mutual Fund, said, “Any flare-up in geopolitical conflicts, fiscal or monetary efforts to support the economy in the run-up to US elections and the just announced slowdown in Fed balance sheet reductions could negatively influence the inflation situation, keeping gold relevant.”

Gold prices have raced northwards recently, outperforming Nifty 50 over a 5-year period returning 17.39% against the Nifty’s return of 15.24%. Considered over a decade, however, Nifty 50 overtook the precious metal in returns, providing 13.3% against 9.02% of gold.

Over the past three months, gold prices shot up by 19%. Over 12 months, by 22.8%.

The price rise has put so many common jewellery buyers out of the market that gold industry office bearers have started lobbying BIS for introducing hallmarking for 9 carat gold to boost demand.

But wealth managers are bullish. They argue that there are many reasons for gold to move even higher. They also advocate for further accumulation in any dip in the next three months.

Consumer price index in the US rose 0.3% in April this year after increasing 0.4% in March and February, delivering the signal that inflation is inching down at the beginning of the second quarter.

Hectic purchase of gold by central banks of China, Turkey and Russia is another powerful factor driving up global demand for gold.

Russia’s invasion of Ukraine triggered fears of risks of the US dollar exposure for many nations. This has led central banks worldwide actively accumulating gold to diversify reserves and reduce dependency on the US dollar. The Chinese central bank is a prime example of this strategy. Retail investors and consumers in China are buying gold too. With the real estate market down in China, many investors in that country have turned to gold.

In the Indian context “Retail investors could stagger their bets in 3-4 tranches using a buy on dip strategy, instead of buying at one go,” Anup Bhaiya, MD, Money Honey Financial Services, told the newspaper. Bhaiya feels investors who fall in the high tax bracket could go for a combination of sovereign gold bonds and multi asset funds to also factor in tax efficiency. Those investors whose income is not subject to tax could use gold ETFs or gold funds, added Bhaiya.

Some multi asset funds are taxed as equity funds. However, a few are eligible for capital gains tax with indexation benefit provided the investment is held for at least three years.

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