Finance

Published: Jan 16, 2023
Updated: Jan 16, 2023

Gold prices hit record high; Know what the investors should do?

Record high

Gold prices in India hit an all-time high on January 12th, reaching Rs 56,245 per 10 grams, surpassing the previous record of Rs 56,191 hit in August 2020. This spike in prices is due to the recent US inflation data which showed that inflation eased last month, leading to hopes that the Federal Reserve would slow the pace of interest rate hikes. Gold prices usually fall when interest rates rise, while a decrease in rates helps keep gold high.

Fall of Crypto currencies and Accommodative Stance of FED spur the price levels

In international markets, gold prices have also firmed up above the key $1,900 level, hitting their highest since late April 2022. This is due to the moderating US retail inflation numbers and anticipation of a less aggressive US Federal Reserve. The fall of cryptocurrencies has also prompted investors to move towards safe haven assets such as gold.

Gold based ETFs shine this year

Gold-based exchange-traded funds (ETFs) have been the major beneficiary of the rise in prices. On a one-year basis, gold funds have been the second-best-performing mutual fund category in India, delivering nearly 17 percent yearly returns. However, on a 10-year basis, gold funds have underperformed, delivering only 5 percent returns.

Volatility likely ahead - Opportunity to buy and accumulate

Experts believe that while the Fed continues to maintain that it will not back off on its inflation fight, markets are pricing in peak aggressiveness to be behind us by mid-2023 given the deteriorating economic situation. They suggest that investors should consider a strategic allocation to gold to help diversify portfolios against market volatility and generate returns if the economic situation worsens. While prices are currently at all-time high levels, they believe that rate hikes by the Fed over the next few months will spur volatility in gold prices and give investors the opportunity to accumulate gold and build their allocation.