Gold price in focus as safe haven; should you increase your exposure to gold?
₹61,460 per 10 grams on MCX on May 5 this year. However, the yellow metal has slipped near to the level of ₹58,500 per 10-gram now. Rising bond yield and the US dollar have weighed on gold prices in the last few months.
Gold prices traded lower on MCX on Friday amid weak global cues as the US dollar reclaimed a two-and-a-half-month peak ahead of a speech by the Federal Reserve Chair Jerome Powell at the annual economic symposium in Jackson Hole, Wyoming. Read more: Gold rate today under pressure amid US Fed rate hike buzz at Jackson Hole meeting Read more: US Fed chair at Jackson Hole: What to expect from Jerome Powell's speech today? 1. Inflation: Gold is often seen as a hedge against inflation.
When the value of currencies falls due to rising inflation, investors tend to buy gold to preserve the value of their investment which increases the demand for gold driving its price higher. Inflation has eased globally but still remains high despite aggressive monetary tightening by the central banks. However, it is expected that inflation will ease further in the coming months.
2. Interest rates: Gold prices react to interest rates in a complex way. In the case of low-interest rates, the opportunity cost of holding gold is also lower, making gold more attractive.
When interest rates go higher, they make other interest-bearing investments such as bonds more appealing. Market experts do not expect rate cuts from the US Fed and the RBI this year. However, the chances of more hikes are also feeble.
3. Dollar's movement: As gold is priced in dollars, its strength is negative for the yellow metal. A stronger dollar can put downward pressure on gold prices and vice versa.
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