Should You Invest in Gold This Year? Religare Broking Weighs In

Gold has captivated humanity for millennia, not just for its beauty but also for its enduring value. In times of economic uncertainty or geopolitical turmoil, gold often shines brighter, attracting investors seeking a safe haven for their wealth. As we navigate the complexities of 2024, the question of whether to invest in gold becomes even more relevant. To shed light on this, let’s delve into the analysis provided by Religare Broking, a leading Indian brokerage house.

Akshaya Tritiya and the SIP Strategy: A Golden Opportunity

Akshaya Tritiya, a traditionally auspicious day in India for gold purchases, presents a perfect opportunity to consider Religare Broking’s recommendation – a Systematic Investment Plan (SIP) for accumulating gold. This strategy advocates for regular, smaller investments spread over time. The benefits are twofold: averaging out the cost per unit and mitigating the risks associated with price fluctuations. Religare suggests targeting a price of ₹74,000 per 10gms as an initial upside potential, offering a roadmap for investors seeking long-term value.

Understanding the Current Market Landscape

While gold prices have witnessed a significant rise of around 12.50% this year, Religare acknowledges a current period of consolidation. This phase, characterized by a temporary stabilization in price movement, shouldn’t deter potential investors. In fact, it could present a strategic buying opportunity, particularly if prices dip towards the 50 SMA (Simple Moving Average) at ₹68,500 per 10gms. However, a break below the previous swing low of ₹65,200 could indicate a potential downward correction towards the ₹63,300-₹63,800 range.

Technical Analysis: Bullish Signals Beneath the Surface

Despite the current consolidation, technical analysis provided by Religare reveals both short-term and long-term bullish signals for gold. The daily chart depicts a consolidation phase following a sharp rise, where ₹70,000 per 10gms acts as a pivot point. While investor hesitation during this period is understandable, a dip towards the 50 SMA could be an opportune moment to enter the market. The weekly chart, on the other hand, displays a bullish flagpole pattern, indicating a possible continuation of the upward trajectory after a brief pause.

Global Forces Shaping the Gold Market

The future of gold prices hinges on a complex interplay of global factors, as Religare Broking aptly highlights. Here are some key influencers to consider:

• Fed Monetary Policy: The Federal Reserve’s monetary policy decisions have a significant impact on the global financial landscape. While the Fed has maintained a restrictive approach with interest rates currently at 5.25-5.50%, recent economic data suggests a potential shift towards rate cuts later this year. This could weaken the US dollar, historically making gold a more attractive investment due to the inverse relationship between their values.
• US CPI Inflation: Inflation remains a pressing concern, with current US CPI (Consumer Price Index) at 3.48%, exceeding the Fed’s target of 2%. As inflation cools down at a slower pace than anticipated, gold’s role as a hedge against inflation becomes more critical. Inflationary pressures erode the purchasing power of fiat currencies, making gold, a real asset with intrinsic value, relatively more attractive.
• Geopolitical Tensions: The year 2024 has witnessed its fair share of geopolitical tensions. Ongoing conflicts in the Middle East, the continuing war in Ukraine, and regional instability pose significant challenges. In such circumstances, investors often turn to safe-haven assets like gold, driving up its demand and potentially raising its price.

Compelling Reasons to Consider Gold in 2024

Based on the factors discussed above, Religare Broking presents several compelling reasons for including gold in your investment portfolio this year:

• Potential for a Weaker Dollar: A shift in Fed policy towards rate cuts could lead to a depreciation of the US dollar. This would make gold a more attractive investment compared to dollar-denominated assets.
• Hedge Against Inflation: As inflation persists above target levels, gold’s historical performance as a hedge against inflation suggests it could retain its value while fiat currencies experience erosion in purchasing power.
• Safe-Haven Asset: Ongoing geopolitical tensions create uncertainty in the global market, prompting investors to seek safe-haven assets like gold to protect their wealth.
• Central Bank Demand: Central banks continue to be major buyers of gold, demonstrating their long-term confidence in its value. This sustained demand can contribute to a bullish outlook for gold prices.
• First Quarter Demand Growth: Despite a decline in ETF holdings, overall gold demand in Q1 2024 showed a promising 3% increase. This growth was driven primarily by strong over-the-counter (OTC) market investments and consistent central bank purchases. While excluding OTC transactions reveals a 5% decline in overall demand compared to the same period last year, the overall trend suggests a resurgence of interest in gold.

Investing in Gold: Exploring Your Options

If you’re convinced about the potential of gold in your investment portfolio, Religare Broking outlines various ways to participate in this market:

• Gold SIPs: As discussed earlier, investing in gold through SIPs allows for regular, disciplined accumulation at potentially lower average costs, reducing the impact of price fluctuations.
• Physical Gold: Purchasing physical gold in the form of bars or coins offers tangible ownership. However, storage costs and security concerns must be factored in. Renting a safe deposit box or opting for insured storage solutions can help mitigate these risks.
• Gold ETFs: Exchange-Traded Funds provide a cost-effective and convenient way to invest in gold without the need for physical storage. However, as highlighted by Religare, ETF holdings have experienced some decline in recent quarters. Investors should be aware of this trend and conduct further research before choosing this route.
• Gold Savings Schemes: Several banks and financial institutions offer gold savings schemes, allowing investors to accumulate gold over time through regular installments. These schemes often offer benefits like free storage and potential bonus units based on investment amounts.

The Final Verdict: A Well-Rounded Portfolio with a Golden Touch

While the future of gold prices remains dynamic and influenced by various factors, Religare Broking’s analysis presents a compelling case for considering gold as a valuable addition to your portfolio in 2024. With potential for a weaker dollar, inflation concerns, and ongoing geopolitical tensions, gold’s role as a safe-haven asset remains relevant.

Beyond Religare’s Insights: Additional Considerations

For a truly comprehensive investment strategy, it’s crucial to consider additional factors beyond those highlighted by Religare Broking:

• Your Risk Tolerance: Gold is generally considered a lower-risk investment compared to stocks, but it’s not entirely risk-free. Prices can fluctuate, and long-term returns may not be as high as with some other asset classes. Understanding your risk tolerance is essential before making any investment decisions.
• Investment Horizon: How long do you plan to hold your gold investment? Gold is typically seen as a long-term investment, and its true value may not be realized if you need to sell quickly.
• Portfolio Diversification: Gold should ideally be just one component of a well-diversified portfolio. By including asset classes with different risk-return profiles, you can manage overall portfolio risk and potentially improve returns.

Conclusion

By understanding the market trends, global factors influencing gold prices, and available investment options, you can make informed decisions about incorporating gold into your investment strategy. Remember, conducting thorough research, consulting a financial advisor, and carefully considering your individual financial goals are critical steps before investing in any asset, including gold. With careful planning and a well-rounded approach, gold can add a touch of stability and value to your investment portfolio in 2024 and beyond.

FAQs about Gold Investment in 2024