More Stories

Informist, Monday, Aug 19, 2024

 

By Sandeep Sinha

 

MUMBAI – Analysts are bullish on gold and the uptrend in prices to be maintained in the second half of 2024, on rising bets that the US Federal Reserve will cut interest rates in September and increased geopolitical tensions in West Asia.

 

"The key factor favouring the upside in precious metals may be the rate cut from the US Fed and weakness in dollar. The strong economic stimulus from China may also boost investment demand for gold and silver," Tapan Patel, fund manager – commodities at Tata Asset Management, said. "The geopolitical factors like US elections, and Israel-Gaza conflicts are the additional factors which may keep risk premium high in bullion prices," he said.

 

The dollar index, which measures the strength of the greenback against a basket of six major currencies, has fallen 4.1% from the high of 106.52 hit on Apr 16 to 102.13 at 1430 IST. A weaker dollar makes commodities priced in the greenback attractive for holders of other currencies, boosting demand for precious metals.

 

Gold prices rose to a fresh all-time high of $2,526.4 an oz today because of a weakness in the dollar on growing expectations of an interest rate cut by the US Federal Reserve as early as September, and heightened geopolitical tension in West Asia.

 

Global gold exchange-traded funds saw inflows for the third successive month, with assets rising 48.5 tn, or $3.69 bln in value, in July, the World Gold Council said in a report earlier this month. Gold holdings with SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, have risen nearly 30 tn to 854.97 tn as on Friday from the low of 825.31 tn on Jun 18. The fund has a market value of $68.32 bln. 

 

"There are signs of (further) interest rate cuts almost everywhere, meaning that the opportunity costs of holding gold are falling. Fed Chairman (Jerome) Powell could provide new signals at the annual Fed symposium in Jackson Hole at the end of this week," Barbara Lambrecht, commodity analyst at Commerzbank AG said in a note to clients. The symposium will take place on Aug 22-24.

 

The German bank has revised its forecast for the gold price at the end of the year to $2,500 per troy ounce from an earlier $2,300 an oz. It expects the gold price to rise further to $2,600 an oz by the middle of next year.

Patel expects that the second half will be eventful for global markets. "Persisting geopolitical factors, US elections, and the possibility of Fed rate cut are the key factors along with economic data performance to watch out for global markets, especially for gold. The market uncertainty due to US elections and Fed policy stance are supporting factors for gold where we may see inflows coming to gold funds. A rate cut scenario may boost investment into gold funds with a fall in dollar," he said.

 

For investors who have a very low allocation to gold or have just started buying gold, the current fall due to the lowering of customs duty in the Budget gives them an opportunity to allocate at much lower prices. Also, the taxation has improved for those in the high tax bracket, as now investors will pay a 12.5% tax after 2 years, compared to the earlier times when they paid tax at slab rates, Parul Maheshwari, a Mumbai-based certified financial planner said.

 

Patel advised investors to go with digital products such as mutual funds and exchange-traded funds as they can be bought and sold in lots of one unit and in multiples thereof on stock exchange. "Gold ETFs trade on the cash segment of BSE and NSE, like any other company stock, and may be bought and sold continuously at market prices. Gold ETFs units come in demat form, which is safe from theft, storage cost, fraud or making charges," Patel added.

 

One could allocate 10-15% of the portfolio to gold based on one's risk appetite as this helps to diversify portfolios and acts as a hedge against inflation, Maheswari said. "Buying physical gold involves high making charges, and storage costs and can have purity and liquidity issues. So one should restrict it to what one can use for wearable jewellery than for investment," she said.

 

When quizzed about which is a more attractive option in terms of gold and silver, Patel said that silver prices are more volatile in nature than gold. Silver as a commodity has the dual characteristic of being a precious metal and an industrial metal. Silver prices may outperform gold in the long term, from returns perspective, with an increase in demand for industrial usage. Silver usage may increase in renewables, solar photovoltaics, and other green technologies which may give an upper edge to the investment compared to gold. However, periodic checks on demand and supply statistics is a must before and post-investment. End

 

US$1 = 83.87 rupees

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Deepshikha Bhardwaj

 

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

 

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2024. All rights reserved.