Should you buy gold this Dhanteras?

  • Gold may have lost its luster over the past six months, but it’s still outperformed most other asset classes in 2022.
  • The yellow metal rose sharply in March but soon cooled as the US dollar continued its bullish trend.
  • Commodity experts say investors with a long-term gold bias can start accumulating gold. When the dollar weakens gold prices could recover from current levels.

Gold has historically been viewed as a hedge against inflation, but that theory has really been put to the test in 2022. As inflation raged throughout the year, gold prices fell for six straight months through September as the greenback continued to strengthen along with bond yields. The yellow metal rose sharply in March but soon cooled as the US dollar continued its bullish trend.

While gold’s long-term triggers are intact, the prospects for the precious metal remain uncertain due to the US dollar’s unprecedented rise. According to the World Gold Council’s September Market Commentary report: “The appreciation of the US dollar has been a major headwind for many assets in 2022 and we believe its performance for the remainder of the year will be a key determinant of gold’s fate . But the dollar faces its own challenges. Rising interest rates, typically another hindrance to gold, appear to matter less to investors now than they did in the first half of the year.”

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Gold may have lost its luster over the past six months, but it’s still outperformed most other asset classes, experts claim. According to Chirag Mehta and Ghazal Jain of Quantum Asset Management Company, “Gold has returned around 7% since the start of Samvat 2078 (November 5, 2021). Compared to stocks and bonds, this is an excellent performance. The Nifty50 index returned about -4%, while bond yields according to the Crisil Composite Bond fund index were almost flat. Gold has thus once again proven itself in the portfolio as a means of protecting capital and as an effective diversifier.”

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So should you buy this Dhanteras Gold? Gold bulls are saying yes as the world heads towards more uncertainty. With interest rates rising and growth slowing in the world’s major economies, commodity experts believe it’s a good time to buy gold as the asset class tends to perform well in a stagflationary environment. While gold can still make sense from an investment perspective, demand for gold jewelry could remain subdued this year as inflation could dampen discretionary spending.

States Somasundaram PR, Regional CEO, India, World Gold Council: “With the recent correction in local gold prices and a benign monsoon, the festive mood among retail consumers appears to be positive. However, the impact of inflation on household finances can have a direct impact on the demand for gold jewelry.”

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Indians remain bullish on gold
India is among the largest gold consumers in the world. And it has remained a popular asset class for many Indians as well. Gold has remained a popular asset for Indian households due to its liquidity and flexibility in asset size, according to Anarock Research. According to a report by Anarock, “Equities are highly volatile and can be easily affected by social, political and economic upheaval. Real estate, always viewed as a long-term investment, brings stability to the portfolio and will appreciate in value over time. The physical nature of the asset also ensures limited wealth erosion, unlike stocks.”

Should You Buy This Dhanteras Gold?

What could drive the price of gold in the future?
Gold could rally if dollar weakens from 20-year high. Typically, all else being equal, a 1% fall in the dollar is associated with a 0.88% rise in the price of gold. Hypothetically, according to the World Gold Council’s Market Commentary report, a complete unwind of the DXY, or dollar index, would imply a 13% year-to-date rise in gold prices. Any weakness in the dollar would also trigger a rally in risky assets, which would be positive for gold.

In India, demand for the yellow metal picked up briefly in September and is likely to continue into October. If global prices continue to correct, buyers could increase their allocation to gold.

Commodity experts say long-term investors can start accumulating gold, but short-term investors can wait for more corrections. Rahul Kalantri, VP Commodities at Mehta Equities, states: “Gold is looking volatile in the coming days and could come under pressure due to the Fed hangover. In the domestic market, gold will get good support due to festival demand.”

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