Gold may flourish if a currency or debt crisis unfolds: Report

Growing unease that inflation will slow the economy and sabotage the stock market rally led gold to five-month highs in November close to the $1,900 mark levels. The precious metal later temporarily fell below the $1,800 level, as the dollar strengthened, only to end the month at $1,774.5 an ounce, a decline of 0.5% for the month.

However, the rupee depreciated 0.4%, supporting domestic prices.

According to the fund house, while the price action in gold will primarily be determined by how inflation and the US Fed policy shape up, it is prudent to hold the strategic asset class in these times of uncertainty plagued economic and health dispersion.

“The emergence of the omicron variant has started impacting the economy to what earlier was assumed to be a post-covid world and is seen clearly putting support for gold while other asset markets see some money taken off the table to assess the real impact,” said Chirag Mehta, senior fund manager-alternative investments, Quantum Mutual Fund.

The AMC expects that with global central bankers responding differently to higher inflation—the US talking about aggressive tapering now against the Eurozone saying it is still some time away from that, the dollar is set to strengthen further at the expense of the Euro as investors look for higher yields. “This will be a headwind for gold in the short term,” added.

The fund house also believes that gold has also been weighed down by some investors preferring bitcoin as their inflation hedge which is far from an established trait.

Upside risks to inflation include Biden’s $1 trillion infrastructure bill, which will pump new cash into the economy. Also supporting gold is the fact that both Fed chain Jerome Powell and the newly nominated vice-chair Lael Brainard are believed to be dovish. Experts believe that inflation dynamics continue to be supportive of gold.