Gold prices in India were trading weak on Tuesday even as rates remained steady in global markets. According to experts, these prices are expected to drop sharply till Diwali. Experts opine that gold rates are likely to fall by Rs 50 per 10 gm on strengthening dollar and interest rate hike scenario.
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The current setup
Emkay Wealth Management, the wealth management and advisory arm of Emkay Global Financial Services, in a note, said that they have been witnessing high inflation and economic uncertainties around the globe and gold has been largely trading range-bound.
Globally, the trading range has been $1,630 and $1,740 for the past 1 month. It is currently trading around $1,690-1,700/oz. Back home, gold December futures were ruling Rs 103 or 0.2 percent down at Rs 50,920 per 10 gram as against Rs 51,023 on Multi Commodity Exchange.
Reasons for the pressure on gold prices and the outlook
The rate hike by the US Fed has led to the US dollar strengthening against major currencies of the world, Emkay said.
"The rise in the US interest rates and the likelihood of the hawkish stance of the Fed converting itself into rate hikes which may go well into the next year as well may keep gold prices at the lower end of the range. The current spell of gold weakness may continue till there is more concrete information on the state of the economy in the major economies, especially against the background of an aggressive central bank trade-off unfavourable to growth and promoting stability," it said.
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Investment strategy
The only factor which gives some potential for strength to gold at this point in time is the occasional talk of gold as a hedge against inflation and uncertainties.
Most financial advisors say that gold should always form a small but crucial part of one's portfolio. A short to mid-term investment in gold should be fine, experts opine.
"The thumb rule for gold is to allocate up to 10 percent of savings/portfolio in gold-related instruments and stay invested to get the benefit of appreciation in gold prices which have a tendency to catch up with inflation," said Anil Chopra, Group Director at Bajaj Capital.
On top of that, diversification is important due to the uncertain economic environment and volatility in the stock market.
For long-term financial goals, an individual needs to have adequate equity exposure, but equity investments are associated with high volatility. Investments in negatively correlated assets such as gold acts as a hedge against big swings in an equity portfolio.
First Published: Oct 11, 2022 4:37 PM IST
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