Gold prices for now are seeing high volatility and after having run sharply by over 20 percent in the year 2020 while there is expected upside it shall not be of the same order as in the previous year in 2021. So, if as part of your investment portfolio, you even are considering investment in gold, here are the watch-outs that you need not ignore:
Gold prices currently:
On expectations of a higher US stimulus package and then increasing US yield, gold is seeing huge choppiness and even as the prices have now climbed above Rs. 49000 on the MCX, one can expect more correction. On January 22, 2021, gold prices on the MCX settled lower by as much as Rs. 258 or over 0.5% at Rs. 49,190 levels per 10 gm.
Factors that may come into play in determining gold pricing going forward:
1. Biden's dole out of a huge US stimulus package:
Now after the US Oval Office has been taken over the new US President, investors are hopeful of a larger stimulus and such a measure boost gold prices as investors take shelter into the yellow precious-metal, gold being regarded as an inflation hedge.
2. KYC measures as was announced earlier for gold jewellery buying:
Now that the KYC for jewellery buying of value less than Rs. 2 lakh has been done away with, there is seen some respite for jewellers and investors. Nonetheless any major announcement on similar front such as disclosure requirement to curb any illicit trade may instill cautious mood and may also weigh on the gold price with a dent in demand.
Interestingly, there is also reported an upward pick-up in physical gold demand, which will also boost prices.
3. Risk-on sentiment may be instilled if all goes well with Covid 19 vaccine administration:
For now the roll of corona vaccine in India has begun and if its successful, there will be faster economic recovery with more positiveness around and this may also push investors' money into riskier assets. And for now, given the momentum in equities, some of the investors money is already finding its way into Indian equities, there has been reported an addition of 10 million new participants into the equity space on a month on month basis.
4. Dollar's strength cannot be ignored:
With the Covid 19 led liquidity, there shall be abundance of dollar and this will weigh on the dollar's index against its rival currencies and hence it shall be bound to decline going forward and this probably will maintain an upside in gold which behaves opposite to dollar movement. . Other indicators in favour of gold include the record-high holding of the precious metal by Central Banks, high global debt, high investment demand, higher bond prices and lower interest rate regimes," says Subramanya SV, co-founder & CEO at Fisdom.
Now what should investors remember when considering investment into gold:
1. They should see gold as a portfolio diversifer giving the advantage of store of value as well as inflationary hedge that is seen as a safe haven in times of distress.
2. Should look gold as an asset class that helps generate high-risk adjusted return
3. Buying on dips shall be the right strategy and that too in a staggered manner to reach the optimal level in overall financial portfolio.