Gold prices rise more than 15% in last three months; what strategies should investors opt now?
Interest rates are an important factor that determine the trajectory of gold prices. When interest rates are high, gold becomes less attractive. When the US Fed hiked interest rates in 2022 and 2023, gold prices dipped (see chart). But in recent months, the US Fed has become less hawkish and more inclined to cut rates. Global gold prices have rallied on these expectations. “Gold prices could remain choppy in the months ahead as the market reacts to geopolitical developments. The medium term outlook for the precious metal is promising, given the imminent turn in the US interest rate cycle,” says Chirag Mehta, CIO, Quantum Mutual Fund.
Gold has also rallied due to strong buying by central banks in the past few months. News reports say some countries are trying to reduce their US dollar reserves following the freezing of Russia’s reserves by the US and Europe, and are shifting to gold. “Increased buying of gold by central banks, especially China, in the quest to reduce dollar exposure (also called de-dollarisation), is the key reason for the spike in gold prices,” says Vidya Bala, Co-founder, PrimeInvestor.in.
Will the rally in precious metal continue? A report by DSP Mutual Fund says gold, silver and other precious metals are likely to lead over the next few quarters. “Gold is in a sweet spot. It will rise if inflation remains high, but also do well if prices cool down and interest rates are cut,” says Raj Khosla, Managing Director of MyMoneyMantra. “Heightened geopolitical tensions will boost the metal further,”
