Investors can use the current consolidation in prices to accumulate gold and build their long -term allocation, said Chirag Mehta, CIO and Ghazal Jain, Fund Manager, Quantum AMC, in their gold outlook report for June 2023.“Over the medium term, the economic headroom for the Fed to keep raising rates is limited. The chance of a recession over the next year held steady at 65%, according to Bloomberg’s survey of economists in May. The US 10-year-2-year yield curve remains inverted,” said the mutual fund managers. “Markets are still expecting the Federal Reserve to cut rates later this year. A rate cut will be preceded by deteriorating economic conditions or financial instability, making the investment case for holding portfolio diversifiers like gold strong,” they added.However, they believe a possible rate hike by the US Fed in June can drag gold down in the short term. “With regional US banks showing signs of stability, inflation still running hot and the debt deal coming through, the Fed may choose to raise rates in June, which will be negative for gold in the near term.
On the other hand, if the Fed does pause in June, whether the pause will be extended or temporary will depend on whether or not prices remain on a sustained downward path. A pause would be positive for gold prices,” they said.
On the other hand, if the Fed does pause in June, whether the pause will be extended or temporary will depend on whether or not prices remain on a sustained downward path. A pause would be positive for gold prices,” they said.
Gold prices started May on a high with the background of pain in the US banking sector leading to global risk aversion, the report said. The Fed policy at the start of the month where the Fed chair hinted at flexibility and a meeting-by-meeting approach was considered dovish by markets. This also supported the prices.
Gold funds offered an average return of 17% in the last one year. The category offered 8% in the year till date. Mutual fund advisors ask investors to invest 5-10% of the portfolio in gold funds to diversify and hedge against uncertainties. Gold may offer stability to your portfolio in times of uncertain economic conditions.
