IGI Logo

With the Federal Open Market Committee (FOMC) Meeting cutting the Federal Funds Rate by 50bps, we are clearly in a falling interest rate regime globally. Out of 38 countries tracked by the BIS Central Bank database, 22 have cutrates in 2024 so far. In this scenario, precious metals such as gold and silver become potential investments,as they have generally shown increased potential infalling interest rate regimes.Gold reached an all-time high on September 23, 2024, touching US$2,629. In India, with cuts in import duties announced in the Budget in July, prices became relatively cheaper. With factors placed in its favour,gold could potentially add glitter to your portfolio !

As seen in the charts above, the world has moved towards monetary policy easing, which has historically beenconsidered positive for Gold prices. In recent times, European Central Bank (ECB) implemented its second rate cut of the year, followed by a 50 basispoints (bps) cut by the United States (US) Federal Reserve, while the Bank of England and Bank of Japan diverged, maintaining status quo. Out of 38 countries tracked by the BIS Central Bank database, 22 have cut rate sin 2024, driven by falling global inflation and weaker global growth outlook.
Global Central Bank buying of Gold rose sharply in 2022, and has remained elevated so far. This has also been attributed as a key reason for elevated Gold prices. As more central banks reduce exposure to the US Dollar in their balance sheets,this trend could continue.

Budget 2024-25 cut import duties on Gold and Silver from15% to 6%,which led to a drop in Gold and Silver prices in India. This has also led to an increase in buying demand for Gold and Silver in India, which was noted in the World Gold Councils monthly report on Gold. To quote: “Also of note in August, the significant cut in import duty on gold in India, which took place in late July, has been as hot in the arm for gold demand in the country. An ecdotal reports suggest the duty reduction was followed by strong buying interest from jewellery retailers as well as consumers.” Trade data for August 2024 also showed a large increase in monthly imports of Gold in India, with monthly imports rising from US$3 bnin Jul 2024 to US$10 bn in August 2024. Indian demand for Gold is one of the largest in the world, and this shift could potentially continue to drive up Gold prices.
Global monetary policy is moving towards aneasing cycle,which has historically been considered beneficial for Gold. While prices have been up for Gold by 27% in US$ terms in CY24 (and 18% in INR terms), there is potential merit in having allocations to gold in investor portfolios, as they could benefit from the multiple reasons mentioned above. For Indian investors, Gold ETFs and Gold Fund-of-Funds could be an interesting way to take gold exposure, reasons mentioned above. Additionally, lack of new issues of Sovereign Gold Bonds since March 2024 also enhance the importance of using Mutual Funds to take exposure to Gold.

Above views are of the author and not of the website kindly read disclaimer