Is it a good time to invest in gold?

The yellow metal is expected to give higher return in 2022 owing to geopolitical tensions along with rising inflationary concerns supporting precious metal prices on lower levels. Though the US President Joe Biden has reaffirmed that no American troops would be deployed to Ukraine, which has receded the fears of a full-fledged global war, this may not necessarily mean that we are out of the woods yet. Considering other macroeconomic risk factors, such as upside pressure on inflation owing to high crude oil prices, volatility may continue to dominate the remainder of 2022.

Under the current circumstances, the outlook is bullish for gold, as the precious metal is historically seen as a hedge against inflation and major economic and geopolitical disruptions. The yellow metal soared to a 16- month high of $1,970 an ounce after Russia attacked targets across Ukraine. MCX Gold April future has advanced by more than 7 per cent so far in 2022, owing to rise in investment demand and concerns for growth. Holding at the SPDR Gold ETF, the world’s largest Gold backed ETF, rose to 1,029.3 tonnes as on February 23, 2022 from 975 tonnes on December 31, 2021.

With gold prices on rise should one invest now? Market participants are keeping an eye on the Fed policy meet scheduled next month on March 15 and 16 which could weigh on precious metal on the short term, although this can be used as buying opportunity. Hence one should be ready to buy at dips to average out the cost.  

“If the current situation further escalates, investors will cling on to safe haven asset or sit on cash i.e. Dollar. Along, with geo-political tensions, rising inflationary concerns has also been supporting precious metal prices on lower levels, hence supporting our view of buying on dips,” said Kishore Narne, Director at Motilal Oswal Financial Services.  

Naveen Mathur, Director - Commodities and Currencies at Anand Rathi Share and Stock Brokers, agrees.  “Under the current circumstances, the outlook is bullish for gold. We need to monitor the developments in the geopolitical tension, any escalation will be positive for gold. Meanwhile, investors are also keeping an eye on accelerating inflation and ensuing rate hikes from the Federal Reserve, after Fed governor Michelle Bowman said that she will assess incoming data in deciding whether a half percentage point rate increase at the March meeting is needed,” he argued.

One of the easiest and cheapest ways to invest is through digital gold. One can buy gold based Exchange Traded Funds (ETFs) or gold funds that track the underlying asset. While ETF’s are listed on the stock exchange in which buying and selling can be done like shares, gold funds are sold by mutual funds. Another way to invest in digital gold is through Sovereign Gold Bonds (SGB). These are 8 years bonds denominated in grams of gold and are issued by the Reserve Bank of India (RBI). It gives the return of 2.5 per cent annually along with market prices of gold at the time of redemption.

“Investor could trade on the exchange or invest in SGB or any other platform available like ETF or Digital gold based on one’s risk appetite. We continue to maintain a positive bias, on quarterly basis, could see the targets of R.52,500 and 54,000, with the supports at Rs. 47,850 and Rs. 46,400. Keeping the above variables in mind, buying on dips strategy can be continued and an extended rally can be seen at around Rs.55000 over the next 12 months.”