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Gold prices hit record high: What you should do now

Gold futures traded at a new high. However, while experts caution against going purely by past returns, they say there’s steam left in the gold rush, with a lot of volatility thrown in.

January 25, 2023 / 09:35 AM IST
Based on specific information, DRI officers conducted a search at the Air Cargo Complex Mumbai Customs on Monday and recovered smuggled gold in various stages of processing, the official said. (Representative Image)

Based on specific information, DRI officers conducted a search at the Air Cargo Complex Mumbai Customs on Monday and recovered smuggled gold in various stages of processing, the official said. (Representative Image)

The yellow metal is on fire. Gold futures traded at a new high of Rs 57,125 per 10 grams on the MCX. In international markets, gold has crossed the important psychological mark of $1,900 per ounce. The recovery in international prices of gold since November 2022, along with a weak Rupee in last one year, have ensured that Indian portfolios with an allocation towards gold have done well. Does that mean you should invest more in the ultimate currency?

Riding the gold rush

In the three months that ended January 24, 2023, exchange-traded funds (ETF) investing in gold and silver saw gains of 15.25 percent and 22.76 percent, respectively. The quick move ensured that placid movement in precious metals in the second and third quarter of CY2022 were forgotten. However, investors are advised to revisit the movement of gold in years prior.

Gold hit a high of $2,070 per ounce in March 2022, in the aftermath of the Russian invasion of Ukraine. But the subsequent announcement of a series of aggressive rate hikes by the US Federal Reserve (the Fed) brought gold prices under pressure. When interest rates are hiked and investors get a positive real rate of return (where the nominal interest rate is higher than the rate of inflation), gold prices go down. A stronger Dollar due to capital flows from emerging markets also worked against gold. No wonder, those who bought gold at above $2,000 are yet to see their purchase price.