Since the beginning of the year, safe-haven assets, in particular gold and silver, have experienced a phenomenal surge, posting about 10% year-to-date gains. With the slowing of global growth, political tensions, and possibilities of slower interest rate increases, brokerage Motilal Oswal believes that this will likely be the year of safe havens, which really is a positive scenario for gold prices.
"Amidst the ease off in inflation, weaker than expected data, increase in fear of global growth slowdown, market is gradually getting poised for some easy off in interest rate. Expectation of 25 basis points rate hikes and then a brief pause is what the market is prepared for, and any signs of dovishness could be supportive for the metals," said the brokerage in its report.
There is some resistance in the physical market for buying gold despite increased prices, the brokerage claims. Since the beginning of 2023, more than 15 tonnes (2%) have been added to Standard & Poor's Depositary Receipts (SPDR) holdings. Even on the domestic front, gold exchange-traded funds (ETFs) have seen strong growth, with the combined assets under management (AUM) of major fund houses crossing ₹17,000 crore. The central bank gold buying frenzy, which is escalating steadily and has seen major central bankers become net purchasers over the past ten years, is another factor boosting global demand. According to World Gold Council, current scale of central bank buying is massive — an annualised rate of 1,724 tonnes versus an average of 512 tonnes over the past decade.
Which platforms are available for one to invest?
Comparing gold returns over the past 10 years for Akshaya Tritiya, the brokerage claims that gold has generated an 11% CAGR. Depending on their risk profile, market players can invest in gold on a variety of platforms. The brokerage suggests investing in sovereign gold bonds (SGB) if you have a longer time horizon since they will help you profit from the rise in gold prices and give you an extra 2.5% return per year along with higher participation since they recently crossed the 100 tonnes barrier. ETFs, which are currently a very popular option to invest, exchange traded derivatives, digital gold, and physical bars and coins are a few additional ways to invest.
In the past, demand and supply considerations have not significantly affected gold prices, particularly when there are more significant market uncertainties present, claims Motilal Oswal. Given the recent strong increase in gold prices, a slight easing of the pace may be warranted.
"Tailwind like any sign from Fed or major central bank regards to change in their hawkish stance or a pause in rate hikes, increase in geo-political uncertainties, rise in fear regarding global growth slowdown and fall in Dollar index and US bond yields could be positive for prices. Gold has performed well during events like pandemic or Russia-Ukraine war; however, this rally is different, as it is on anticipation of a rate hike cycle change and anytime that happens we see a good and a sustained jump in safe havens," said the brokerage.
The brokerage continues to maintain a positive stance for gold and recommend buying on dips, with target towards of ₹63,000 for gold on domestic front and $2100 for gold on Comex.