The tradition of Indian households to buy gold on Dhanteras has become one of the best performing investments in recent times. Gold has returned a whopping 30.6% in just a year compared to the previous Dhanteras; The total return would be 56.8% if you had invested in the metal 2 years ago (in 2022) on Dhanteras day.

Not only do the short-term returns look impressive, the long-term returns of the yellow metal are also usually in the double-digit range. Such a strong performance will encourage many more to invest in the yellow metal around Diwali.

Historically, gold has experienced multiple price corrections and stagnation over many years. Good performance in the recent past does not guarantee higher returns in the future. If you plan to invest in gold, you need to weigh your options and know whether prices will continue to rise.

A sharp reduction in tariffs cannot prevent the price of gold from rising

The shine of gold has not dimmed even though the government drastically reduced the customs duty from 15% to 6% in the budget presented in July this year. A correction in gold prices that occurred after the Budget announced tariff cut is now a thing of the past. “After the tariff reduction, gold prices in India initially fell, but have since recovered significantly. From Rs 68,000 per 10 gm in July 2024, gold has recovered to Rs 76,000 per 10 gm in October 2024, up nearly 12%,” said Narinder Wadhwa, Managing Director, SKI Capital.

The price of gold is now more closely linked to international price movements

The short-lived correction has linked gold prices in India more closely to global gold prices. “Since India imports most of its gold, lower tariffs reduce import costs and narrow the gap between local and global prices,” says Renisha Chainani, head research at Augmont. “As a result, fluctuations in international gold markets are now more likely to be reflected in domestic prices in real time. Additionally, global factors such as changes in US interest rates and geopolitical developments will have a more direct impact on the Indian gold market.”

Gold prices are now more closely aligned with international trends. “As of October 2024, gold prices in India are around Rs 76,000 per 10 gm, reflecting global price movements. While alignment with international prices has increased, domestic factors such as the rupee’s exchange rate against the US dollar and local demand continue to have an impact on prices,” says Wadhwa.

Gold price in the future: Central bank demand is expected to remain high

One of the most important factors determining the direction of gold prices is the purchasing volume of central banks, which are the largest buyers of gold. “Central banks have increased their gold reserves to hedge against global economic uncertainty and inflation. In 2023, central banks purchased a total of over 1,000 tons of gold, according to the World Gold Council. This trend is likely to continue from the perspective of gold as a safe store of value, especially in volatile geopolitical times,” says Wadhwa.

Central bank demand is unlikely to fall significantly. Surendra Mehta, secretary of the India Bullion and Jewelers Association (IBJA), says central banks will give more weight to gold as long as the current armed conflicts continue.

Chainani says: “Central banks are likely to continue increasing their gold reserves in 2024. Surveys and data suggest that despite high gold prices and already significant purchases in recent years, many central banks – particularly from emerging markets – intend to maintain or even increase their gold holdings. Key drivers include the need to diversify reserves, hedge against economic uncertainties and reduce reliance on traditional reserve currencies such as the US dollar. “In addition, concerns about geopolitical risks and changes in global monetary dynamics provide further incentive for central banks to increase their gold allocations.”

Will gold prices lose momentum in the near future?

Although gold returns have been very good in the past, the question for every investor is whether this will happen again.

“Continued growth will depend on several factors, including international gold prices, central bank policies (particularly US Federal Reserve decisions) and holiday season buying trends in India. If inflation persists or geopolitical tensions increase, gold could continue to rise as a safe haven asset. Due to strong investment demand, gold prices are moving towards $3,000 (around Rs 85,000) in the next six months (i.e. 10% more), says Chainani.

Gold is considered a good hedge against economic uncertainties. The outbreak of a major conflict somewhere in the world or an economic downturn often has a positive impact on the price of gold. “Whether prices will continue to rise depends on global economic conditions, inflation and geopolitical tensions. Gold tends to be a good investment during times of war and uncertainty, which could push prices higher, possibly above Rs 78,000, if geopolitical risks escalate,” says Wadhwa.

The ongoing conflict in the Middle East is likely to continue for some time. “As tensions continue to escalate in the Middle East, gold prices will continue to rise,” says IBJA’s Mehta. He also suggests that the US economy is entering a recession and therefore the price of gold is rising.

Should you buy gold this Dhanteras?

Gold offers a good way to hedge your investment portfolio against inflation and economic uncertainties. “Dhanteras is traditionally a favorable time for gold purchases and with the price hovering around Rs 76,000 per 10 gm in October 2024, many investors might consider buying gold.” Despite the higher price, gold remains a solid hedge against inflation and geopolitical uncertainty. For those looking to diversify their portfolios, buying gold during Dhanteras could be beneficial provided they evaluate their long-term goals and risk tolerance,” says Wadhwa.

Investors living in a country like India are better off maintaining some exposure to gold.

The October 2024 issue of NETRA, a monthly report from DSP Asset Managers, states: “Including gold in a portfolio serves as a hedge against volatility, protecting against risk while increasing overall returns.” For investors in emerging markets, gold offers uncertainties Times both stability and growth potential.”

While celebrations can be an excuse for such a purchase, they help you diversify your investment. “If you are looking for long-term stability and portfolio diversification, investing in gold can be beneficial this festive season,” says Chainani. “Given its value as a long-term hedge against inflation and economic uncertainty, investors may consider buying gold this Dhanteras. Despite high prices, gold retains its appeal due to seasonal demand, cultural significance and its role in portfolio diversification. As central banks continue to accumulate gold reserves, prices are likely to remain stable or rise in the long term.”

Which form of gold is best for your investment?

You have many options for investing in gold – for example, bars, coins, jewelry, gold funds, gold ETFs, gold treasury bonds, digital gold, and so on. If your goal is investing, you need to make sure you invest in the most efficient way. “For most investors, gold ETFs or gold government bonds are the best option due to liquidity and tax benefits, although no new SGBs have been issued; Only the earlier editions are available in the market,” points out Wadhwa.

Since the government has not issued any new SGBs this year, it is better to consider other options. “Gold ETFs and digital gold are good alternatives for those who want to avoid storage problems and still benefit from a possible price increase,” says Chainani.

Should you invest in gold in large quantities or staggered amounts?

It is known that the price of gold is subject to significant fluctuations. Therefore, it is better to invest in stages. “A staggered investment strategy through SIPs is generally recommended to mitigate price volatility and avoid timing risks. Bulk purchases may be suitable for those looking for specific holiday deals, but may expose investors to short-term market fluctuations,” adds Chainani.

A staggered investment is a better option as you can also increase or decrease the amount. “In terms of strategy, staggered investments over time help reduce volatility risk. However, for those who expect further price hikes due to geopolitical uncertainties, bulk investments at the current price level of Rs 76,000 could be a good strategy,” adds Wadhwa.

“The recent price rise was a momentum play following the escalation of the Middle East conflict with Israel preparing to respond to Iran’s missile attack. The US Federal Reserve interest rate cut, central bank gold purchases, the upcoming US elections and geopolitical risks remain.” Important supporting factors for gold prices. Investors may look for accumulation when prices fall. The current market environment could be favorable for a strategic allocation to gold as an investment in a portfolio,” said Tapan Patel, Fund Manager – Commodities, Tata Asset Management.