When geopolitical and macroeconomic uncertainties are high, investors take refuge in gold, as the yellow metal, a safe-haven asset, is considered a hedge against inflation and other risks.
However, the yellow metal’s performance over the last month has sort of debunked this belief. Instead of rising, prices have seen a significant correction amid the ongoing US-Iran war.
As per MCX data, domestic spot gold prices have declined about 6% since the US-Iran war started on February 28. In the futures market, the gold rate is near ₹1,52,000 per 10 grams, while in late January, it was near ₹2,03,000 per 10 grams.
Gold prices have declined due to the rise in the US dollar. The war in the Middle East has driven crude oil prices to multi-year high levels. Since crude oil is traded in the US dollar, the rise in oil prices drives dollar demand and raises its value.
Moreover, elevated crude oil prices have raised the risk of inflation flare-up and dimmed the prospects of rate cuts by the US Federal Reserve. Gold’s stellar rally last year has also capped its upside. All these factors have acted together to keep gold prices down lately.
Is it the right time to buy gold?
The long-term outlook for gold remains bullish due to factors such as central bank buying, geopolitical uncertainties, and the high global debt. However, the near-term outlook remains hazy due to the crude oil factor and the US dollar factor.
“The outlook for gold remains bullish in the long term, supported by a few strong factors, such as central banks continue to buy gold as part of a shift away from the US dollar, rising global debt and fiscal stress are increasing demand for safe-haven assets, and ongoing geopolitical tensions, including wars and trade conflicts, are supporting prices,” Jigar Trivedi, Senior Research Analyst at IndusInd Securities, noted.
However, Trivedi added that in the near term, gold may face some pressure due to persistent inflation and delays in interest rate cuts. In India, a weakening rupee is acting as an additional tailwind for gold prices.
“Gold is expected to trade in a broad range of $4,500 to $5,200 per ounce in the short to medium term. Investors should maintain a balanced portfolio, with around 15–18% allocation to gold or bullion,” said Trivedi.
According to Hareesh V, the head of commodity research at Geojit Investments, investors should wait for gold prices to stabilise.
“I think investors should wait. The broad outlook is still bullish because there are no negative fundamentals at present. But geopolitical tensions have again escalated. So, we don’t know how gold may perform in the coming weeks,” said Hareesh.
“If the tensions remain intact for a longer period, for two to three months, pressure on gold may persist. But once the issues are settled, gold can improve,” Hareesh said.
Currently, HNIs (high net-worth individuals) and retail investors appear doubtful, and are liquidating their gold positions into liquid cash, primarily looking into the US dollar, which is rising.
It is time investors keep about 15-20% of their investible money in gold for the long term and avoid short-term bets.
“I believe one can allocate more than 15% on a longer perspective. Temporarily, they can stick with the same scenario they have done in the last few years- that means systematic investments and things like that. You need not increase the position immediately,” said Hareesh.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
