Commodity experts feel uncertainty will persist over the short term and investors should exercise caution in raising exposure.
Gold has been under pressure for a while and has been trading around $1,250 an ounce in the spot market. The strengthening of the dollar has been one of the main causes of weakness in gold.
However, where is gold headed and is the correction a good time to invest in it? Commodity experts feel that the uncertainty will persist and investors should exercise caution while considering raising exposure in the yellow metal.
“The primary element that will influence the price of gold is US Dollar. Any appreciation in US Dollar will be negative for gold. Another aspect would be the movement of US Treasury Yield. Any increase in US T-Yield will be bearish for gold in the short term as investors will flock for US bond. In coming months issues such as US Interest rate will play an important role in determining gold prices,” Aasif Hirani, Director , Tradebulls Securities told Moneycontrol.
Hirani advises investors to be cautious at this point. “At the current level, we won’t recommend increasing gold exposure because of rising US interest rate environment. Gold investors are forward looking and expectation of 2.9 percent level interest rate in long run from current 1.75-2 from Fed will cap gold prices on the upside. However, if gold in COMEX comes around $1200, then investors should increase exposure in gold as we have seen since past 2 years that gold fails to sustain below $1200 and bounces back meaningfully giving handsome returns in short term,” he said.
Rahul Agarwal, Director, Wealth Discovery/EZ Wealth feels gold prices are expected to remain under pressure. “Over the course of the last six months gold returns have been negative by almost 5%. Gold is expected to trade in a range with a negative bias, currently we are looking at $1250 as a major support and if the prices breach those levels the next support would be around $1220,” Agarwal said.
He says the yellow metal is unlikely to create wealth in the near term. “As an investment option we do not see a bull case for gold at least in the near term. In the current context a lot will depend on the global tariff wars and how it impacts global growth. If US economy continues to show strength despite the tariffs and US interest rates continue to strengthen, we can see a further down side in gold price,” he said.
Agarwal advises only a small holding of gold in the overall portfolio. “Typically gold exposure in an individual's portfolio should be around 5-10%. In the short term and medium term we do not expect gold to rally. In our opinion, exposure to gold should be only for diversification purposes this year,” he says.
Gnanasekar Thiagarajan, Director, Commtrendz Research, however, takes a different view. He says investors can consider taking fresh exposure to gold. “Prices are expected to be range bound, but with a bullish bias and the downside being very limited from present levels. It would be safe to start buying gold at these prices and any dips from here as the potential to rise in the medium-term to long-term still looks promising and that outlook has not changed,” says Thiagarajan.He pointed out that uncertainty is being caused by contradictory pressures on gold. “Globally, we are in difficult times. Factors such as trade wars, Brexit, rising oil prices and rising interest rates in the US would have ideally pushed investors towards the safety of gold. But, due to rising yields in the US, most investors have sought safety in the dollar rather than gold,” he said.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.