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Gold glitters: Experts say you can allocate 5-15% of your portfolio to the yellow metal

The year 2020 so far has been a golden one for gold and the rally is following one of the best years in 2019 when global prices rose around 18 percent and domestic prices rallied 24 percent.

February 27, 2020 / 02:00 PM IST
Representative image

Representative image

With the growing concerns around the impact of coronavirus outbreak on the global growth, Gold prices are constantly inching up.

Since the outbreak of coronavirus, equities across the globe have been witnessing drubbings as concerns that the pandemic could hit global economic growth, pushing investors to offload riskier equities and rush to safe-haven assets, such as gold.

The year 2020 has so far been a golden one for gold and the rally is following one of the best years - 2019 - when global prices rose around 18 percent and domestic prices rallied 24 percent.

"After consolidating in a narrow range for around three months, global gold prices rallied during December and continued their positive momentum on the back of heightened political tension between the US and Iran. The initial part of the rally occurred alongside a weakening dollar and rising inflation expectations combined with still weak economic growth," said brokerage ICICI Direct in a report.

In the international market, gold is heading towards multi-year high levels now. In the domestic market, India Gold April futures hit a fresh record high in the week gone by but slipped after that. Experts attributed this volatility in gold prices to fluctuating currency and equities.

Close

Bullion experts feel that from a trading perspective, traders could use dips towards Rs 42,000 per 10 gm to accumulate or add fresh positions in the yellow metal.

Trading strategies:

Brokerage: ICICI Direct Research

ICICI Direct highlights that historically, the performance of gold is not structural.

"Generally, it performs in specific short periods of time, especially during the capital market meltdown, global recession, geopolitical tension, etc. Therefore, it may not be an ideal long-term asset class," said ICICI Direct.

The year 2019 saw all three major asset classes — global equity market, debt market as well as gold — delivering double-digit returns. One of the likely reasons could be that even gold has become a financial asset, which gets a premium in an environment of surplus global liquidity, ICICI Direct pointed out.

"With gold prices having run up significantly, investors should not over-allocate to the asset class. The allocation to gold, particularly having run significantly, should not be more than 5-10 percent of the overall portfolio. Investors need to be extra vigilant in analyzing asset class returns," said the brokerage.

ICICI Direct

Expert: Ajit Mishra, VP- Research, Religare Broking

As per the analyst, gold prices look largely positive from a long-term perspective and can target higher levels of around Rs 42,500 per 10 gram.

"Once there is a breach of the said level, the metal looks poised to test Rs 45,000 from a one-year perspective. However, from a short term perspective, prices are seen facing an immediate hurdle at $1,610-1,615 an ounce in international market," the analyst said.

He expects some profit-booking in the near term as there is a slowdown in the spread of coronavirus and also as dollar index has surged to three-year highs.

"It is advisable to wait for some declines and look for buying opportunities in a staggered manner at lower levels. We advocate that an investor should allocate 5-15 percent of its portfolio for hedging purposes in gold depending on your risk appetite," the analyst said.

Religare

 

Expert: Gaurav Garg, Head of Research at CapitalVia Global Research

"We have placed the target for gold in 2020 at Rs 44,000 and new investors should wait for a dip till Rs 40,900 and initiate buying from that level," said Garg.

The analyst is of the view that from an overall portfolio perspective, investors can allocate up to 15 percent of their funds to gold futures. Any correction in gold will be a buying opportunity and might be a good diversifying asset to the portfolio.

capitalvia

Expert: Umesh Mehta, Head of Research, Samco Securities

Gold is likely to touch levels of $1,700 per ounce in the year 2020 and it is a buy even at the current levels if investors are considering it from a long-term perspective, said the analyst.

"From an overall portfolio perspective, 15 percent of your total corpus should be invested in gold," said the analyst.

samco

 

Gold prices in futures trade tend to be volatile as a host of factors, including GDP numbers, inflation, geopolitical tensions, political uncertainty and monsoon, affect gold prices.

Experts suggest having a small portion of one's investment portfolio in gold and continue investing in quality stocks, mutual funds and fixed income products for diversification.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Nishant Kumar
first published: Feb 27, 2020 02:00 pm

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