Is the Gold rally over?

In April, gold prices appreciated by 4%, and as the countdown for Akshay Tritiya begins, prices will shoot up further

Rahul Jain May 14, 2021

Gold biscuitsA safe haven during tumultuous times, Gold scaled new peaks last year, taking everyone by surprise. Commanding prices of over ₹ 56,000 in some parts of the country, the yellow metal once again established as the go-to asset during volatility.

However, following the highs, Gold prices corrected. There were questions as to whether the rally we witnessed last year is over or not.

Gold prices expected to go up in the near term

It’s difficult to conclude if the rally is over not. Note that after gold prices corrected, they have once again started their upwards trajectory once again. In April, gold prices appreciated by 4%, and as the countdown for Akshay Tritiya begins, prices will shoot up further.

As India is under the second wave of the pandemic with several state governments imposing mini or total lockdowns depending on the situation, expectations are rife that the central bank will pump more money into the economy to sustain economic growth. Hence, Gold price is definitely all set to go up in the near term until things stabilise.

Factors leading to this push

Currently, India is recording COVID cases at a fast clip. At the same time, experts have warned about a third wave hitting the country. This coupled with rising inflation in the United States, weakening of the US dollar and lower yields, have boosted prices of the yellow metal.

At the same time, the current situation looks grim and threatens to halt the progress made in Q1. It has given rise to uncertainties, and all of these factors have led to a push in Gold prices. Given the current state of affairs, it’s likely to continue until normalcy returns.

Though countries, including India, are doing their best to inoculate their population against the deadly virus, the inoculation rate is not encouraging. While India sees the second wave, many European nations are in the grip of the third, and the volatility created has boosted prices.

How much of your portfolio should be in Gold?

The yellow metal is shining and shining brightly. As said, if not in the long-term, the short-term prospects of Gold looks bright. In such a scenario, it’s very easy to get carried away and tilt your portfolio towards it.

While undoubtedly, Gold hedges your portfolio against volatility and is a safe bet when the going gets tough, don’t have more than 10% of your overall portfolio. This is because if you compare long-term returns of Gold as against asset classes such as equities, the returns are timid.

So, maintain an allocation in Gold that will provide the help balance your portfolio and cushion it from the vagaries of the market. If you don’t have Gold exposure, now is the right time to invest.

If you have, ensure you don’t go overboard to rush into buying it as prices would come down once things return to normal. Fiscal prudence coupled with a holistic understanding of your goals will help you make an informed choice.

Rahul Jain

Rahul Jain is EVP & Head, Edelweiss Personal Wealth.

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