Gold prices have risen around 16 per cent this year. It is believed that prices may increase further, so should retail investors invest more in this ‘safe-haven’ asset now? But before deciding, they should know the reasons for its price increase in the last three months and whether it is the right time to invest in the precious metal.

Why Is Gold Price Surging?

Some reasons for this price hike are the ongoing war between Ukraine and Russia, Israel-Iran tensions, and the expectation of the US Fed rate cut. Interest rates and gold prices move inversely. Gold prices dip when the interest is high, but a rate cut makes the yellow metal more attractive.

Preeti Zende, a Sebi-registered investment advisor, says, “Currently, the central banks of many countries, including RBI, are buying gold to hedge their debts. This shift is seen as a broader move away from the US dollar as the primary global reserve currency. The RBI’s gold purchases have reached their highest level in the past two years”. 

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She further explains that because investors expect a rate cut by the US Fed soon, those who have invested in US government securities are now exploring alternative options to secure their funds. Geopolitical tensions led to a rise in crude oil prices, adding pressure on the share market, which slipped significantly in the last few days, and gold prices surged. 

According to Sachin Kothari, director of Augmont Gold For All, “Portfolio diversification and increasing allocation in gold by ultra HNI investors, safe-haven buying by speculators around the world amid middle east tensions, central bank buying for diversification and de-dollarisation, and expectations of debt crisis or recession going forward due to alarmingly high levels of US fiscal debt and trade disruptions” are the primary reasons behind the increase in gold price.

As the price rise has mostly been due to global factors, retail investors should be flexible and cautious about when they invest in gold.

Is It Time To Invest In Gold?

According to experts, gold is a good tool for portfolio diversification. If you already have sufficient gold in the portfolio, there is no need to ramp up the exposure, especially now when the shiny metal is already at a high. The gold prices surged more than Rs 74,000 on April 12, and after sliding for one day, it again crossed Rs 74,000 per 10 grams. 

Amid this, Zende says, “Investing in gold at this point can be risky as we are not sure how various factors will affect the market, such as the Israel and Iran tension, the Fed’s stand on interest rates, and the performance of Europe and China’s economy. Therefore, it’s better to wait for a correction and invest in gold at a lower level for long-term investment.”

Kothari says, “Gold and Silver have started their new structural bull market, but it seems that prices have discounted all positive factors very quickly and have ignored all negative developments in the past month. So, it seems that their prices are ripe for a healthy correction and price retracement, and prices have topped out in the short term. Prices are in the overbought zone, so this is not the right time for lumpsum investment in gold, but yes, one can start SIP to get better average pricing”.

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He also recommends waiting for some time in anticipation of a correction. He says, “If one wants to start a new investment in gold now, one should wait for prices to correct by 6-7% to around Rs 70000/10 gm in the next one month. Gold has given 12% CAGR returns over the last 20 years, and it is expected to continue to do so in the future too”.

Even if it is a safe haven, buying gold at a high price will not generate good returns. Hence, wait until the situation becomes clear. As experts say, gold prices increase in uncertain times and vice versa. So, wait for correction and clarity over macro factors before buying gold.