Global as well domestic headwinds has once again set the eyes rolling on the yellow precious metal which is sought for safety during times of geo-political and economic turmoil. Earlier during the week, gold recorded a new high of Rs. 38,488 per 10 gms while in the global markets gold has been trading at its over more than 6 year peak at $1505.20 per ounce.
Now what future holds for the yellow metal prices and should investors take its rescue even at such prices, we will discuss here:
Though there has been softening of demand in jewellery buying due to high prices, experts suggest that while any time is good time to dig in gold, but the current interplay of events make gold a still better bet at this high level:
1. Global slowdown and nationalism events across the world render gold attractive as a good hedge:
The US-China trade war, Brexit and other such events world over are posing a threat to the global economy and its wake gold has now turned to be an attractive avenue counterbalancing currency risk that comes with other investments such as stocks, bonds and deposits at bank.
Also, the recent threat by the US President to impose additional duty on Chinese goods sent both the equity markets and currency markets world over to a tailspin after China in retaliation allowed its currency to sink to levels of 7 per dollar for the first time in 10 years.
2. Monetary policy easing and low interest rates:
In times of low interest rate or looser monetary policy, bond yields traverse lower and hence non-interest yielding gold turns attractive. Further hopes of a rate cut by the US in current distressed times, will only bolster gold prices in times to come. Analysts at Goldman Sachs have forecasted gold to scale to $1600 amid gold gaining sheen once again as a safe haven. Other companies are also bullish on gold.
3.Central banks diversifying with higher plunge in gold metal instead of US dollar as a reserve asset:
This potential shift in the international monetary system by central banks world over bodes well for gold wherein reliance on US dollar as a reserve asset has been decreasing. As per WGC, the central banks have bought 374 tonnes of gold reserves in the first half of 2019, the most in the first half at least since 2000.
4. International monetary system could soon be multi-currency oriented:
There has been seen a spurt in non-dollar agreements among economies including Turkey, Russia and Iran and this shift could both be dollar negative as well as destabilizing. And this move augurs well for gold which proves to be a hedge against both the situations.
Furthermore, other reasons why betting on gold is a strategic call and not a tactical call at such times is as its shares low co-relation with other asset classes and has an history of providing improved portfolio risk-adjusted returns plus it offers liquidity at par with other mainstream investment avenues and can prove to a source of decent return in the long run.