Gold Outlook: Amid Economic Risks, High Inflation, How To Invest In This Safe Haven?

Gold prices continue to test below $1,950 per ounce, as the latest US Federal Reserve chair Jerome Powell's speech at the Jackson Hole meeting provided little direction. Gold prices in India were unchanged at Rs 54,500 per 10 gram in 22-karat and Rs 59,450 per 10 gram in 24-karat on Saturday. In the majority of cities, 22-karat gold prices stayed above Rs 54,000 and 24-karat over Rs 59,000 marks in 10 grams. The current situation globally is bleak with geopolitical tensions, stubbornly high inflations, and economic jitters. This has given some support to gold prices. However, US rate hikes are expected to be a spoiler for the rally of gold ahead. In such a situation, how should investors place their bets in bullion? Gold is usually seen as a safe-haven asset for hedging returns amidst difficult times.

On Friday, spot gold dipped 0.4% to $1,910.31 per ounce, while the US gold futures shed 0.4% to $1,939.90 per ounce. Both dollar and 10-year benchmark yields picked up momentum. At home, on MCX, gold futures expiring in October, slipped by Rs 171 or 0.29% to settle at Rs 58,640 per gram.

During the Jackson Hole meeting, Powell said, "We are attentive to signs that the economy may not be cooling as expected. So far this year, GDP (gross domestic product) growth has come in above expectations and its longer-run trend, and recent readings on consumer spending have been especially robust. In addition, after decelerating sharply over the past 18 months, the housing sector is showing signs of picking back up. Additional evidence of persistently above-trend growth could put further progress on inflation at risk and could warrant further tightening of monetary policy."

He added, "Two per cent is and will remain our inflation target. We are committed to achieving and sustaining a stance of monetary policy that is sufficiently restrictive to bring inflation down to that level over time. It is challenging, of course, to know in real-time when such a stance has been achieved. There are some challenges that are common to all tightening cycles."

At upcoming meetings, Powell added, "We will assess our progress based on the totality of the data and the evolving outlook and risks. Based on this assessment, we will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data. Restoring price stability is essential to achieving both sides of our dual mandate. We will need price stability to achieve a sustained period of strong labour market conditions that benefit all."

In July month, gold gained 3.1% in July helped by a lower dollar and a spike in breakeven inflation rates, as per the World Gold Council report.

How should investors bet on yellow metal?

Hareesh V, Head of Commodities at Geojit Financial Services said. "The ongoing geopolitical and economic uncertainties like higher inflation, China economic jitters, and the pandemic-related economic distortions amid the Russia - Ukraine war continue to offer support to the safe haven status of gold in the immediate run. Hopes of a demand recovery from India may also contribute to the trend. However, it is unlikely for major rallies due to uncertainties over US rate hikes and the performance of US assets."

Meanwhile, Jateen Trivedi, VP Research analyst at LKP Securities pointed out that given the ongoing trend of global central banks acquiring gold and the uncertain global economic landscape, gold prices are anticipated to remain steady, if not rise significantly due to the impact of a stronger dollar and elevated interest rates. However, the trajectory could swiftly change. The moment the Federal Reserve hints at a potential pause in its rate hikes or even the possibility of an interest rate cut, gold prices are likely to surge.

Taking these factors into account, Trivedi said, "Investors can reasonably project an optimistic outlook for gold, foreseeing price levels in the range of 61000 to 62000 by the close of the year. It's a strategic move that aligns with both the weakening rupee and the traditional buoyancy of the festive season in India. For investors seeking to accumulate gold, a strategic entry point lies between the current levels of 58500 and 57000."

Further, to investors, Hareesh guides them to cautiously increase their exposure to gold as prices corrected about 5 per cent from their all-time highs and the key demand season is nearing, which may increase the demand and thus the price of the metal. In addition, a weak Indian Rupee also offers additional support to the yellow metal.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.