Moneycontrol Pro Panorama | Is gold’s current run speculative?

With the US Fed signalling rate cuts amid weak labour data, the opportunity cost of holding gold has narrowed further.

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Gold is back at centre stage. In times of global anxiety, the yellow metal rarely misses a chance to reclaim its “safe haven” tag. This time is no different.

On September 17, spot prices touched an eye-watering $3,683 per troy ounce—an all-time high, and up 43 percent this year. Back home, MCX October futures quoted Rs 1,10,138 per 10 grams.

What is fuelling this rally? Geopolitical fires—from Middle-East flare-ups to Sino-US trade frictions—have pushed risk-averse investors into bullion.

Not surprisingly, central banks, particularly in Asia, are stocking up, reducing reliance on the dollar. With the US Fed signalling rate cuts amid weak labour data, the opportunity cost of holding gold has narrowed further.

That said, gold is no free lunch. At these levels, the metal looks over-stretched, buoyed by speculative inflows. Recall 2011, when gold’s bull run ended in a bruising multi-year slide.

If the Fed eases slower than what markets expect, or if geopolitical stress eases, a sharp correction could follow. For Indian investors, rupee weakness adds another layer—good for exporters, but a double whammy for those chasing dollar-priced assets.

However, gold still has a role—as portfolio insurance. A 10–15 percent allocation, through sovereign bonds or ETFs, remains sensible. Treat it as a hedge, not a jackpot. Physical buyers—households adding ornaments for weddings—are sitting on tidy gains, but timing exits will be critical.

Silver, meanwhile, has quietly stolen the show. At $41.98 an ounce, it’s up 39 percent YTD, its highest in 14 years. Unlike gold, silver has a dual identity: safe haven and industrial metal.

Demand from solar panels, EV batteries and semiconductors has lifted consumption even as supply lags. That volatility cuts both ways. A slowdown in global growth could puncture the rally just as quickly as it built.

History shows that precious metals thrive when the global order looks fragile. But rallies driven by fear are also fragile.

Also, read Manas Chakravarty’s take on the FOMC meeting (September 16–17), where the BIS’s stark warnings about fiscal risks and market exuberance cast a shadow on expectations for dovish rate cuts.

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Dinesh Unnikrishnan
Moneycontrol Pro