Will Gold prices rise further? Gold is having a golden run. But whether the rally in prices would extend to the rest of the year would depend on a number of factors.
A US Fed rate cut and Chinese central bank resuming purchase could largely determine gold prices for the rest of this year. (Picture Credit: Freepik)
Let truth be told – gold has outperformed equities in the first half of the calendar 2024 ie, between January and June this year. Spot gold prices in the domestic market jumped by almost 14% in the first half of 2024 while the Nifty 50 index rose by about 11%.
Two assets rising simultaneously
The simultaneous rise of the two asset classes itself defies traditional logic. While gold usually rises in a climate of economic gloom, equities tend to fall in those times and vice versa.
But any investor is bound to ask whether, with such stupendous rise in the price of gold, is there any possibility of the yellow metal prices moving north again soon? In fact, what will happen to the price graph for the rest of this year?
For hundreds of years, gold has been valued for its safe-haven characteristic.
Why the jump in H1?
One, central banks of several major economies, led by the People’s Bank of China, aggressively purchased a lot of gold and paused it in May after an unbroken streak of 18 months only because the prices ran up too high. Reserve Bank of India, too, bought gold during this period.
Add to it geopolitical tensions in Palestine and Ukraine and the prolonged hopes for interest rate cuts by the US Federal Reserve.
Can gold keep shining?
Some experts think that the golden run of gold is likely to continue. For one, central banks have taken a breather and waiting for the prices to dip before resuming purchase.
China could resume buying
David Tait, the CEO of the World Gold Council recently said in Singapore that the Chinese central bank is waiting to resume it purchase of gold when the price touches $2,200 per ounce level. That itself can put upward pressure in prices.
The current global prices are in the range of $2,411 per ounce.
According to Goldman Sachs, average gold price will be $2,133 per ounce this year. JP Morgan Chase sees it at $2,175 per ounce.
What could investors do?
A possible reduction in the Fed rate – earlier in July Fed chairman Jerome Powell signalled satisfaction at the decline of inflation – would keep up the upward pressure on the prices of gold.
“Undoubtedly, gold is the best long-term asset that offers safety and decent returns to its investors. Domestic gold prices have doubled in the last five years and surged more than 980% since 2003. There is steady demand for physical and investment purposes in the country,” the head of commodities at Geojit Financial Services, Hareesh V, told the Mint.
He also held out a piece of advice for investors: one could allocate 10-12% of the portfolio in gold and one could buy during dips.
However, it is always advisable that one consult a qualified financial advisor before committing money to any asset class.