Gold has been shining bright of late as investors rush to lap up the precious metal owing to uncertainty as to how the world economy will fare in months to come in the wake of the Russia-Ukraine episode, inflation and elevated crude oil prices while there is always a looming risk of a new variant of coronavirus.
Indian equities have been under pressure in the recent past as investors develop cold feet over Russia invaded Ukraine. While riskier equities saw a selloff, gold witnessed traction as investors rushed to safe-haven assets sensing uncertainty in days to come.
As per a Reuters report, holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust rose to the highest since July 2021 to 1,042.38 tonnes on Tuesday.
At this juncture, risk-averse investors may think it is time to invest more in gold and avoid equities. However, analysts are not on the same page.
"Gold is rallying as a result of a number of factors, not the least of which is the conflict in Ukraine. There are also inflationary concerns, which will have an impact on Federal Reserve Chair Jerome Powell's testimony before the United States Congress on Wednesday and Thursday for more clarity on interest rate hikes amid Ukraine tensions and soaring inflation," Kshitij Purohit, Lead Currency & Commodities at CapitalVia Global Research, pointed out.
However, analysts point out gold prices will ease as soon as the market stabilises and equities begin to rise.
"Gold prices will correct at least 5 percent when the markets will begin to rise after Russia-Ukraine tussle ends," said G Chokkalingam, Founder, Equinomics Research & Advisory Pvt Ltd.
Inflation is usually seen as supportive to gold prices but at this juncture, gold has moved up not because of inflation but because of geopolitical uncertainty and it may not sustain the gains when the uncertainty ends.
"Gold doesn't seem to have moved up much because of inflation. It has primarily gained on uncertainty and once the uncertainty on the global front eases, gold may come down to its previous range," said Pankaj Pandey, Head of Research at ICICI Securities.
"Gold price would fluctuate in response to developments on the war front. When the hostilities end gold prices would come down," said VK Vijayakumar, Cheif Investment Strategist at Geojit Financial Services.
The biggest obstacle in the path of gold prices is the healthy outlook of the equity market. Experts expect the market to clock healthy gains in the wake of the Russia-Ukraine episode.
Also, a stronger dollar may keep gold prices capped.
"Gold is rangebound as support from safe-haven buying and inflation concerns amid increased Russia-Ukraine tensions is countered by firmness in US dollar and uncertainty about Fed’s monetary policy stance," Ravindra Rao, CMT, EPAT, VP- Head Commodity Research at Kotak Securities, highlighted.
"Gold has bounced back after a brief correction however prices are still below recent highs which shows waning confidence. We may see volatility continuing however unless there are concrete efforts to dissuade tensions, general bias may be on the upside," said Rao.
Investors may hold gold for a longer time but analysts do not suggest increasing the allocation in gold. They can also track the technical indicators of gold prices and the level of ₹51,500 is crucial.
"As a result of the current uncertainty, gold prices will rise as a safe haven. Investors must hold gold for a longer period of time. A sustained move above ₹51,500 will indicate the presence of buyers, and the long-term Fibonacci level at ₹52,700 is the first upside target. Surpassing this level indicates that buying is becoming more aggressive, with a target of ₹53,500," said Purohit.