Gold gliding at high altitude, likely to stay elevated

Gold at US$1760, is at a striking distance from the crucial US$1800 level. Given the factors that have been
driving the prices, the likelihood of gold getting closer to that mark seems to be almost certain.

What gives gold strength is the uncertainties in the global economy, the pandemic and the lockdown and the fall in business revenues, the cut in interest rates by central banks, the infusion of liquidity, and the presence of negative interest rates. It is almost certain that all the major economies will go through a contractionary phase during this year and early next year. It is these uncertainties that have helped gold to move up.

Second, there has been good demand for gold from ETFs and institutional investors in the last two years. The central banks have been the major contributor to institutional demand.

But what we need to keep in mind is that once these uncertainties are behind us, the rationale for gold to appreciate will not exist. We need to be watchful of that point. The last time gold touched US$1800 was in September 2011 and in the same year, in December, gold was already lowered to US$1560.

When this correction happens, the returns will get naturally normalized. But in the overall asset allocation plan, an allocation equivalent to 5% of the portfolio is a standard allocation to gold. This could be modified from time to time, based on the view on gold.


These funds are the primary route through which investors can allocate the investible surplus in gold
asset class. The underlying asset of these funds is Gold ETF. The key feature of gold savings funds is
that investors do not require any demat account to invest in these funds. The transactions can be
executed in a manner identical to other mutual fund schemes. The onus of providing liquidity to the
investors too falls on the fund house, thereby providing easy exit to the investors at the time of

To read the full Navigator issue, click on the banner below



Leave a Reply