Use price corrections to add more gold to your portfolio, Ghazal Jain of Quantum Mutual Fund
gold allocation has benefited investors. With returns on gold mutual funds as of October-end close to 20% y-o-y, many of us might have missed the gold rally. But don’t let that dampen the Diwali spirit. Prospects for gold are looking good in the long term, giving you more reason than just the festivities to invest in the precious metal.
International gold prices bottomed out in October last year and started moving up slowly over the next six months as the Federal Reserve became less aggressive with its rate hikes. Prices moved up sharply in March 2023 as a regional banking crisis erupted in the US and drove risk assets down. Risk aversion and expectations of Fed cutting rates in response to the crisis were the drivers. But the crisis did not spread to other parts of the economy and gold cooled off in the subsequent months.
Meanwhile, inflation remained more than double the Fed's 2% target and US economic indicators were showing resilience, meaning there was more requirement and more room to hike rates. Fed began indicating a hawkish stance again. US yields and US dollar moved up and gold moved lower till September.
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Then the conflict in the Middle East last month renewed geopolitical tensions. Risk averse investors rushed to the relative safety of gold, driving up prices. This run up in prices is despite a strong US currency and elevated US interest rates, which increase the opportunity cost of holding gold.
In the near term, the uncertainty from the geopolitical crises seems to be influencing gold prices, outweighing the hawkish stance of the Federal Reserve. The US Dollar and US yields have also lost some
