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NEW DELHI: Equities are performing poorly in 2022 and amid concerns over high inflation globally, chances of steep interest rate hikes by the US Fed are pretty high.

This Akshaya Tritiya, analysts believe gold should account for at least 10-20 per cent of investor portfolio, on an average, given it shares an inverse relationship with equities and is considered a hedge against inflation.

Sriram Iyer, Senior Research Analyst-Commodities and Currencies

Securities said inflation and possibly stagflation like situation could persist in the global economy and the best way to hedge that is to diversify into gold.

“Indeed, gold shined during the stagflationary 1970s in the US. The price of the yellow metal started to rally in late 1976, soaring from slightly above $100 to around $665 in 1980’s, when the CPI annual rate reached its peak of 13.5 per cent,” he said.

Sugandha Sachdeva, VP-Commodity and Currency Research at Religare Broking, recommended investing around 10-15 per cent of one’s portfolio in gold for reducing the overall risk and enhancing returns.

Inflation in the US is running at its hottest in four decades, which visibly sets the investment rationale for the ultimate safe haven asset, she said.

“As of now, we are in an environment of uncertainty due to the increased inflation pressures, Russia-Ukraine war, extended Covid lockdowns in China and the scorching pace of monetary tightening by the US Fed which are threatening to exert a drag on global growth. In such an environment, gold outperforms riskier assets and provides superior returns,” she said while expecting a 12-15 per cent return for gold till next Akshaya Tritiya.

In a situation where inflation is high and growth rates low, additional rate hikes only further slow down the rate of growth to a point that the global economy is tipped into stagflation, leading to recession.

Pritam Patnaik, Head – Commodities, HNI and NRI Acquisitions, Axis Securities, said that if one were to review the historical reaction of extended periods of rate hikes cycles, since 1961, the Fed has attempted nine such full cycles of rate hikes, out of which 8 of these tries ended up with a recession.

“Historically, gold prices seem to correct at the time of the actual announcement of the rate hikes but subsequently witness significant rallies, as either the intensity of the rate hike starts to wane or is suspended altogether. With the rising inflation trend being extremely stubborn due to post Covid and Russia-Ukraine war-induced commodity supply chain bottlenecks, which will take a long time to unravel, the central bank has an extremely tough job, wherein it seems to be stuck between the devil and the deep blue sea,” Patnaik said.

Spot gold prices at around Rs 51,250 per 10 grams on Friday were up about 7 per cent over Rs 47,899 level as of December 31, 2021. They were still trading about 9 per cent lower than an all-time high of Rs 51,276 level made in August 2020.

Ravindra Rao, CMT, EPAT, VP – Head Commodity Research at Kotak Securities said gold has a general negative correlation with equities and, hence, it should be part of a well-diversified portfolio. Gold’s share in an investment portfolio can range from 5-10 per cent depending on the risk appetite of the investor. However, not that we are seeing increased volatility in equities, people may consider increasing their exposure in gold,” said he.

Megh Mody, Commodities and Currencies Research Analyst at Prabhudas Lilladher said any bounce in gold prices towards Rs 52,000-52,500 in the short term. One should invest 10-20 per cent of their portfolio into gold, while keeping a track of Fed Fund rate in the near future.


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