The current catalysts making a bullish case for gold are the banking and funding crisis and the rising probabilities of a US recession next year, says N.S. Ramaswamy, Head- Commodity Desk & CRM, Ventura Securities.
In an interview with MintGenie, he talks about price trends, global events that have benefited gold, and the fundamental components that investors should watch out for when investing in gold.
He also advises investors that gold must be included as an asset class in 2023.
1. What are the fundamental elements that you will be keeping an eye on for gold?
Gold is a safe haven asset during times of rising currency debasement risks. Hence, the volatility in the US 10-year treasury yield gives direction to interest rates and would guide gold price movement. There are triggers like sovereign balance sheet risks, geopolitical risk and other market tail risks. US Dollar index weakening is a strength to gold. The current catalysts making the bullish case for gold are the banking and funding stress and the rising probabilities of a US recession next year.
2. In line with strong global trends, the price of gold increased by ₹450 to ₹59,350 per 10 grams on Thursday in the national capital. In recent days, the price of gold in India reached a new high of ₹60,000 and has remained there. Does the price of gold still have room to rise?
Price of gold in rupee terms depends on currency USDINR. Gold in comex is still poised for an upward movement but behaviour of USDINR can dent Gold prices in rupee terms. Thus said there is scope for it to hover in 61,000-61,900 range. We don't see prices crossing 62,000 in the short term as comex gold will need to break resistance of $2050 which is a wait and watch in the next week on a short term perspective.
But, the metal has broken those crucial $2000 mark and has a resistance at $2060, so the long term view is intact with bullish note for end 2023 and beginning 2024.
3. On the backdrop of the collapse of Silicon Valley Bank (SVB), Credit Suisse’s struggles, and Fed rate hikes, investors have been inclined towards gold and treasury. Do you think these factors will boost gold demand, even if it coincides with a softer dollar?
Fear is the key medium to short-term driver for gold even more than real rates. Gold has risen by more than $150/toz in the last two weeks as a result of stress on the financial system (the collapse of SVB and struggle for Credit Suisse, besides fear of a few more banks). These fear factors of banks collapse, liquidity injection will impact dollar, hence demand is likely to rise for gold.
4. How much gold should be included in a new investor's portfolio? What advice do you have for new investors in 2023?
A portfolio should include gold in the range of 20-25% of the portfolio, since 2024 year could witness COMEX Gold to cross the all-time high of $2079. Gold must be an asset class inclusion in 2023 by investors, although gold price from here on is likely to give 6% to 8% as the expected returns by mid 2024 year.