Even though gold prices have shot up due to geopolitical tension between Russia and Ukraine, experts have warned investors not to allocate more than 10-15% of their portfolio towards the precious metal.
Gold had crossed Rs 51,500 per 10 grams on Thursday after Russia declared war against Ukraine. In any such geopolitical crisis, gold becomes a safe haven asset and investors rush to their park money in it.
Chirag Mehta, Senior Fund Manager, Alternative Investments, Quantum AMC said “While the Russia-Ukraine conflict will be in the headlines for some time now, investors must keep in mind that gold is not a tactical play.”
“One should stick to the fundamentals and allocate 10-15% of their portfolio to this strategic asset class that has time and again played a return-enhancing and risk-reducing role in investor portfolios in times of financial, geopolitical or other crisis. Those already invested should thus stay put. New investors should avoid lumpsum investment at current levels.”
Financial markets will continue to remain vulnerable to geopolitical developments in the immediate future. Gold, which is a much-chased asset class in such times, is set to benefit as risk-averse investors increase exposure to it amid pullbacks in risk assets. Once the uncertainty on these front eases, gold prices can be expected to sober down.
He added, “However, in the event of this conflict getting extended or escalated, we are looking at more money printing to fund military actions, higher energy prices as supplies from major exporters Russia get hit and economic sanctions against Russia as the NATO fights back. All these will fan the fire of already high inflation, take a toll on slowing economic growth and spur market volatility and risk aversion. This environment will be supportive of gold prices but will eventually clash with the Fed’s tightening cycle, which is expected to keep gold prices in check,” said Mehta.
Tapan Parel, senior analyst at HDFC Securities said, “Gold prices pared some previous gains from 17 months high after Russia invaded Ukraine and US imposed sanctions on Russia which investors are considering weaker than expected. The traders and investors continue to re-assess the situation surrounding the Russian invasion of Ukraine as well as further sanctions against Russia.”
Gold prices at MCX are trading weakly pressured by a stronger rupee, he said adding that gold prices will likely trade sideways to up for the day with COMEX spot gold support at $1,870 and resistance at $1,970 per ounce. MCX Gold April support lies at Rs 50,600 and resistance at Rs 51,500 per 10 gram, said he.