Can gold deliver solid returns by next Akshaya Tritiya? What analysts are saying

As the spring festival Akshaya Tritiya draws near, many investors wonder whether safe-haven gold, which has gained 8 per cent year-to-date, can be the place to go.

Analysts said there are several factors that would keep gold prices in a modest range over the next one year, but they believe a good percentage of the yellow metal in the portfolio is a must for optimum diversification of investment portfolios.

Ravindra Rao, CMT, EPAT, VP- Head Commodity Research at Kotak Securities said since Akshay Tritiya was in May last year, MCX gold price has risen more than 7 per cent and the gains were supported by inflation concerns and geopolitical tensions. The upside, however, has been challenged by the US Fed’s monetary tightening expectations, he said.

“With increasing challenges to the global economy and increased volatility in equity markets, we expect to see strong investor interest in gold and this may keep prices supported. However, this is also the year when the Fed and other central banks may start to normalize their interest rate to bring inflation under control. Given these diverging factors, we expect to see a modest 5-7 per cent return in the next one year.”

Spot gold prices were at around Rs 51,300 per 10 grams on Friday, up 7 per cent over Rs 47,899 level as of December 31, 2021. They were still trading 9 per cent lower than an all-time high of Rs 51,276.00 level made in August 2020.

Megh Mody, Commodities and Currencies Research Analyst at Prabhudas Lilladher said gold historically has shown positive moves during Akshaya Tritiya and that there are high chances for gold reaching towards Rs 52,000-52,500 range.

“However, it seems that the bounce will be short-lived, thanks to likely Fed rate hikes and the surge in the dollar index, which may put a lot of pressure on gold.

“The bullion is known as an inflation hedge and one can start accumulating it once it falls near Rs 50,000 per 10 grams levels. I think 30-35 per cent of a portfolio should be for yellow metal as uncertainty is still looming across the globe which can be subsided by safe haven,” he said.

Sugandha Sachdeva, VP-Commodity & Currency Research at Religare Broking said she does not anticipate staggering returns from gold as aggressive policy tightening by the key central banks remains a key headwind for the precious metal going forward.

“However, gold can garner decent returns of around 12-15 per cent by the next Akshaya Tritiya,” she said.

Sriram Iyer, Senior Research Analyst-Commodities & Currencies at Reliance Securities said the prices could correct further due to expectations of an aggressive rate hike by the Fed. He remained unsure of gold returns over the next one year, as multiple factors are at play.

“Next year is too far away and there are a lot of uncertainties in the markets to predict what could happen then. Bullish factors include a stagflationary-like situation globally and an extension of war between Russia and Ukraine. Bearish factors are higher interest rates which could eventually lead to a stronger dollar and exit of QE by the Fed,” he said.