What is Driving Gold Prices to An All-Time High?

Driving Gold Prices
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On Tuesday, 17th January 2023, gold futures were trading at an all-time high. So, is this the gold rush of 2023 or just a fad? Moreover, what is driving gold prices to new highs? Let’s explore.

What’s Happening?

In the new year, gold has made some plans to shine. On Tuesday, 17th January 2023, gold futures were trading at an all-time high of Rs 56,430 per 10 grams. Whereas in the international markets, gold has surpassed the psychological level of $1,900 per ounce.

The Gold Rally

Whenever there is uncertainty in the markets, investors prefer parking their funds in a safe haven like gold. Hence, we have seen volatility in gold prices during inflation, recession, slowdown, geopolitical conflicts, the weak dollar index, etc. 

In March 2022, gold hit a high of $2,070 per ounce after the uncertainty of the Russia-Ukraine conflict. Thereafter when inflation data kicked in, and the US Federal Reserve opted for aggressive rate hikes leading to a strong US dollar index, the gold prices went under pressure and hit $1,620 per ounce in November 2022. This happened because when interest rates are hiked, investors withdraw their investments from variable return instruments and park their funds in fixed-income instruments; hence, gold felt the heat.

In 2023, it seems things are turning in favour of gold. According to S&P Global Market Intelligence Report, the COVID-19 pandemic, the Russia-Ukraine war and other geopolitical shocks will continue to impact the global economy into 2023. 

Moreover, according to Reuters, The World Gold Council (WGC) said that in the third quarter of 2022, central banks globally bought 399 tonnes of gold which is by far the most ever in a single three-month period.

All these will create a favourable atmosphere for gold to gloom in 2023. 

Navneet Damani, head of commodities research at Motilal Oswal Financial Services, says, “Change in the Fed’s aggressive rate hike stance, positive flows in ETF, and central bank purchases of gold should boost sentiment and lift gold prices”.

What Should Investors Do At Such Times?

Don’t let short-term rallies define the asset allocation of your portfolio. If you are eyeing to invest in gold, then you can allocate a small part of your portfolio to it. You can choose to invest in gold ETFs, gold mutual funds or Sovereign Gold Bonds. But remember, if you are looking to take advantage of short-term volatility in gold, then you may consider investing in gold ETFs, whereas if you have a long-term perspective, then you may consider investing in Sovereign Gold Bonds (SGBs) as they barely trade near to the current value of gold. 

That’s it for today. We hope you found this newsletter informative. Don’t forget to share it with your friends.

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