Gold investments could return 11% in 2023, but spread your purchases

Mumbai: Gold has beaten most traditional asset classes, like equity and debt, in performance so far this year but experts are recommending against going the whole hog on the yellow metal at this juncture. While gold is likely to extend its current rally, that helped it cross the ?61,000-mark in the domestic market last week for the first time ever, aggressive purchases at elevated levels might not be a sound investment strategy. Instead, experts are telling investors to continue spreading their purchases over a longer period of time.

Analysts expect the metal to return another 11% in 2023. Since January, gold has topped the performance charts vis-a-vis equities and debt, helped by the inflationary and slowing growth environment globally.

Gold has gained over 9% since January, while the Nifty 50 and Sensex are down 2-3% in this period.

Though fund managers and analysts do not see the precious metal losing its sheen anytime soon, they are cautioning gold must not be more than 10% of one’s portfolio.

“My view on gold remains positive, but you need to look at it more from a tail-end allocation perspective, as something which can make your portfolio risk-averse,” said Lakshmi Iyer, chief executive officer at Kotak Investment Advisors.

“You can’t get carried away and substitute debt or equity with gold, because these are financial asset classes, and have a proven and tested space in your portfolio,” she said.

Prospects of the US Federal Reserve limiting its interest rate increases in a few quarters from now has led to the dollar index weakening, which in turn, has boosted gold prices.Gold has enjoyed a strong run over the past few years aided by uncertainties and safe-haven buying during the COVID-19 pandemic, and then as a hedge as the world grappled with inflation reaching multi-year highs. Central banks globally, including the US Federal Reserve, have been raising interest rates to combat this inflation.

The current rally in gold prices, experts believe, could be aided by the expectations of a recessionary environment in developed markets, which could lead to central banks going easy on interest rate increases.

“We have not seen a breakout rally in gold prices in international markets as yet,” said Viral Shah, the head of brokerage at 360 ONE Wealth. “If we are able to sustain these levels, say $2,080 or $2,100, over the next one or two weeks, then there is a higher probability that we can touch $2,200 levels, he said.

Domestic prices, though, are not seen keeping pace with the rally in international markets. If, for instance, international markets rally 10%, domestic prices could gain about 7%. This will translate into domestic prices of about ?67,000-68,000 towards the end of the year, said Shah.

Analysts expect gold prices to hold fort even though an easing interest rate environment could lead to a relief rally in equities, especially in emerging markets. Gold prices tend to move opposite to equities.

Buying by central banks globally is seen anchoring gold prices.

“Central banks have been buying gold for a long time, and this time it is only the Chinese banks, which are contributing to the gold buying,” said Naveen Mathur, the director for commodities and currencies at Anand Rathi Shares and Stock Brokers.

He sees gold prices at around ?62,500 over the next two-three months. Mathur recommends holding 10% of the investment portfolio in gold.

“Gold is more to do with diversification, particularly for times when risk assets are unlikely to do well,” he said.