How Would Gold Perform in 2024

Dec 14, 2023 / Reading Time: Approx. 7 mins

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How Would Gold Perform in 2024

Last year, in December, I wrote a piece: 5 Reasons Why You Need to Own Gold in Your Portfolio in 2023. In it, I mentioned inflation, simmering geopolitical tensions (Russia-Ukraine war, hostile relations between China and Taiwan, tensions between the U.S. and China, conflicts in the MENA region, etc.), geoeconomic fragmentation, global economic uncertainty, and increased stock market volatility as factors that would support gold.

Thereafter, in the summer of 2023, even as the government changed the tax rule for debt funds -- which also applied to gold mutual funds (gold ETF and gold saving funds) -- I reiterated my view in favour of investing in gold.

[Read: Why It Still Makes Sense to Invest in Gold Mutual Funds Despite the Change in Tax Rule]

At that time, the talking point was the U.S. debt ceiling limit, Germany had entered a recession, the U.K. reported timid growth, and the outlook remained subdued.

Asia, of course, remained a bright spot ----particularly India, with structural reforms being rolled out, higher GDP growth reported, and RBI making prudent and timely interventions to India's financial system remain resilient.

This was also a time when the U.S. (the world's largest economy) was witnessing bank failures or bank runs -- almost one after the other owing to asset-liability mismatch and large withdrawals -- evoking memories of the global financial crisis of 2007-08 (considered to be a serious one since the Great Depression of 1929).

Even Credit Suisse, Switzerland's second-largest bank and considered to be systemically important globally, failed. It was eventually purchased by its rival, UBS (Switzerland's largest bank and a long-time challenger to Credit Suisse).

[Read: Why Gold Would Continue to Shine in 2023]

Closely monitoring these economic and geopolitical events (including the recent Israel-Hamas war), I suggested tactical allocation to gold.

On a year-to-date basis, against the backdrop of various factors, the precious yellow metal gold has delivered a respectable +12% absolute return in Indian Rupee (INR) terms as of December 12, 2023.

Graph 1: Performance of Indian Equity Index, Debt and Gold

*Data as of December 12, 2023
MCX spot price of gold used. Returns expressed are in absolute terms considering domestic currency.
Past performance is not indicative of future returns.
(Source: MCX, ACE MF, Data collated by PersonalFN Research)
 

In other words, gold has displayed its being a safe haven, a hedge, and has been an effective portfolio diversifier during uncertain times. Gold, in fact, has even defied a high interest rate regime.

The question now arises: How would gold perform in the year 2024?

Watch this video to know:

 

Well, as we walk into the new year 2024 various factors will have a bearing on gold.

If the U.S. economy sees a 'soft landing' (and not a hard landing), which is what the overall consensus anticipates, it would be a positive for the global economy and give a boost to equities and take the spotlights away from gold. Soft landing means the central banks raise policy interest rates adequately, whereby it controls inflation without causing an economic downturn.

According to the World Gold Council (WGC), the past two soft landings have resulted in flat returns for gold. The World Gold Council (WGC) has assigned a higher probability range (45% to 65%) for a soft landing this time.

At present most central banks in the Advance Economies (AEs) and Emerging Market Economies (EMEs) have slowed the pace of tightening while they are watchful of the inflation trend.

Table: Global Economy Faces Three Likely Scenarios in 2024

(Source: www.gold.org)
 

But contrary to the expectations if interest rates are increased aggressively to control runaway inflation and an overheated economy, it could cause a downturn sooner and chances of a recession cannot be ruled out.

Graph 2: Soft Landing is a Rarity

(Source: www.gold.org)
 

History suggests that in times of recession or severe economic slowdown, gold has exhibited its sheen and fared better than equities, as smart investors, then prefer gold and high-quality debt instruments.

So, much depends on the interest rates and inflation. If inflation cools (due to the monetary policy actions), the real rate of return would improve and reduce the allure of gold.

That said, a fact also is geopolitical tensions are looming. A Natixis SA Poll of 500 Institutional Investors shows that geopolitics is the biggest market risk in 2024. Geopolitical bad actors with one action can upset the economic and market assumptions globally, revealed the poll. Even the S&P Global Market Intelligence observes that in this disjointed world, the global environment has still not settled onto a clear pathway toward new stability as we enter 2024.

Furthermore, 2024 is an election year. There are elections scheduled in India, the U.S., Europe, Mexico, Indonesia, and several other countries. This means there could be some element of political uncertainty, and change in dispensation may have a bearing on future economic policies. The uncertainties, in turn, could bode well for gold.

Recognising the various forms of risks, even central banks as part of their risk management and risk mitigation, would continue to buy gold (as they did in 2023), observes the WGC, which would again prove supportive for gold.

A fact is unlike financial assets, gold is a real asset -- meaning gold does not carry credit or counterparty risk. Even a stronger U.S. Dollar, hasn't deterred investors from buying gold.

You see, gold is a strategic long-term asset class. During periods where equities and debt have generated lacklustre returns for investors, it is gold that has exhibited sheen (see Graph 1).

Graph 3: Gold has exhibited its sheen in the long

Data as of December 12, 2023
MCX spot price of gold used.
Past performance is not indicative of future returns.
(Source: MCX, data collated by PersonalFN Research)
 

The long-term secular uptrend gold has exhibited cannot be ignored and highlights the importance of owning gold in the portfolio. In the last decade, gold has clocked a CAGR of nearly +7.3% as of December 12, 2023. Since India's independence, gold has clocked a CAGR of nearly +9.0% as of December 12, 2023.

Therefore, it makes sense to strategically allocate around 10% to 15% of your entire investment portfolio towards gold and hold with a long-term view (of over 5 to 10 years) by assuming moderately high risk.

In 2024 the returns for gold as an asset class may not be in double digits as seen in the years 2019, 2020, 2022, and 2023, but it would potentially prove to be a hedge in your portfolio.

Invest in gold the smart way --in the form of Gold ETFs, Gold Savings Funds, and/or Sovereign Gold Bonds.

Happy Investing!

Note: This write-up is for information purposes and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. Mutual Fund Investments are subject to market risks, read all scheme-related documents carefully before investing.

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ROUNAQ NEROY heads the content activity at PersonalFN and is the Chief Editor of PersonalFN’s newsletter, The Daily Wealth Letter.
As the co-editor of premium services, viz. Investment Ideas Note, the Multi-Asset Corner Report, and the Retire Rich Report; Rounaq brings forth potentially the best investment ideas and opportunities to help investors plan for a happy and blissful financial future.
He has also authored and been the voice of PersonalFN’s e-learning course -- which aims at helping investors become their own financial planners. Besides, he actively contributes to a variety of issues of Money Simplified, PersonalFN’s e-guides in the endeavour and passion to educate investors.
He is a post-graduate in commerce (M. Com), with an MBA in Finance, and a gold medallist in Certificate Programme in Capital Market (from BSE Training Institute in association with JBIMS). Rounaq holds over 18+ years of experience in the financial services industry.


Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.

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