Where the yellow metal goes from its current level will depend again on the above-mentioned factors. A year ago, it was widely held that the world economy was on the growth path, and hence central banks such as the US Fed would be able to hike rates while the European Central Bank would begin to wind down asset purchases. But, things haven't panned out as expected. Faltering expectations regarding future rate hikes and escalation in geopolitical tensions will both be positive for gold.
Those looking to carry out short-term trading in the yellow metal should wait for a correction. “All the uncertainties have already got factored into the price. Unless tensions vis-a-vis North Korea escalate, a correction might be due,” says Prathamesh Mallya, chief analyst-non-agri commodities and currencies, Angel Commodities Broking. He advises traders to wait for the Rs 29,000 level to enter the yellow metal.
Long-term investors who hold gold as part of their asset allocation should either build a 10-15 per cent allocation or maintain it. "Since gold is negatively correlated with equities, having an allocation to it will reduce the overall risk in your portfolio," says Anil Rego, chief executive officer, Right Horizons, a Bengaluru-based financial planning firm. As for the instruments to use for investing in it, Rego suggests gold exchange-traded funds, gold savings funds (you can do systematic investment plans in them), and sovereign gold bonds (SGBs), which provide an annual interest income of 2.50 per cent of the initial investment. But, liquidity is an issue in SGBs. If you wish to exit them in the near future, you may have to sell them at a discount on the stock exchanges.