The voters in India, the world's largest democracy, have given a decisive mandate to the BJP led NDA. The BJP alone conquered over +272 seats and the NDA as whole over 300, in 2014 Lok Sabha elections. With Mr Narendra Modi being projected by the NDA as its prime ministerial candidate, people voted with confidence, hoping a change amid time when corruption has risen and several scams unfolded during the tenure of UPA.

So now that there is a stable Government at the centre with Mr Narendra Modi soon to be sworn in as Prime Minister of India, let us evaluate how gold as an asset class will perform going forward.

You see, so far over the last half-a-decade, with uncertainty looming around in the domestic and global economy, gold prices have scaled up and have remained elevated. But of late some corrective move is seen.
 

Gold got bold!

Data from May 16, 2009 to May 16, 2014
(Source: ACE MF, PersonalFN Research)  

There is hope building on the NDA, that the country would witness sunny days with better structuring of policies, implementation, better infrastructure - which all could aid in clocking better economic growth and in turn build confidence in the economy.

But here's why gold prices may not be impacted much...
 

• Mixed economic data of the U.S. economy
  
  Although the U.S. economic is depicting a recovery, the economic data is yet depicting a mixed signal. While the U.S. Federal Reserve continues to taper its stimulus by U.S. $10 billion a month, Janet Yellen, the Chairperson of the U.S. Federal Reserve believes that the economy still requires a strong dose of stimulus, even after 5 years of recession ended. This is because employment and inflation are well short of the Fed's goals. So in such a scenario, gold prices may not be impacted much, but in fact remain elevated.
   
• Geopolitical tensions between Ukraine and Russia
  
  The re-emergence of geopolitical tensions between Ukraine and Russia could also be supportive for gold, as smart investors would take refuge under gold for its trait of being a hedge during uncertainties.
   
• Concerns over Chinese economy
  
  China's economic growth has been dwindling. In the first quarter of 2014 China reported a growth of mere 7.4% and is way down from 9.0% plus witnessed in 2011. Moreover, HSBC China Manufacturing Purchasing Managing Index (PMI) is the contraction zone at 48.1 in April 2014 signalling deterioration in overall operating conditions on account of decline in output and new orders. It is noteworthy that, fewer new orders have led firms cut their staffing levels at a modest pace. Likewise, HSBC China Services PMI has fallen to 51.4 in April 2014 from 51.9 in the month prior, although it has been in the expansion zone. Thus overall HSBC China Composite PMI data is placed in the contraction zone at 49.5 in April 2014, up from 49.3 posted in the month prior. It is noteworthy that banks in China are witnessing a big rise in bad loans - and a further slowdown in their economic growth rate could cause loan defaults to rise.
   
• India's macroeconomic data - A tryst with reality!
  
  The fiscal deficit of India, has already run-up to 114.3% (or Rs 5,99,299 crore) of the full-year target in the first 11 months of the fiscal year due to slower revenues and large fund releases. This infuses risk to the ambitious fiscal deficit target (of 4.6% of GDP) set by the erstwhile UPA Government and is a burden passed on to BJP led NDA. Rating agencies are already flagging concerns on India's fiscal situation, and if any slippage on this front does occur, it would pose a risk to India's sovereign rating and pose a challenge for the new Government.
  
  Similarly, there are inflationary pressures imminent. With the IMD having officially forecasted a below-normal monsoon this year (due to 60-65% chances of an El-Nino phenomenon) and the unseasonal winter rainfall along with hailstorms witnessed by some part of the country already having done damage, risk in instilled towards food prices. Moreover, now that diesel prices have been hiked recently (due to elevated global fuel prices), the risk also emanates therefrom, as diesel is an essential transport and industrial fuel.
  
  Amid such times, in all likelihood the Reserve Bank of India (RBI) may keep policy rates elevated. In fact, if inflation actually goes up the RBI may even hike policy rates. And if that indeed happens, clocking a better economic growth would pose a challenge.
  
  Though the trade deficit has narrowed further to U.S. $10.1 billion in April (from U.S. $10.51 billion in March), and thereby dispelled the worries over Current Account Deficit (CAD); these factors are factored in. Also, while the reduction in import duty and relaxation in gold import rules is expected, it remains to be seen when the Government actually does it and by how much. Nonetheless, gold prices could see some pressure from a stronger Indian rupee against the U.S. dollar.
   

Hence in the background of the above, PersonalFN is of the view that gold prices may not be impacted much, but in fact remain elevated. You ought to recognise that while there is a stable Government at the centre, there are challenges and structural problems yet remain. Therefore we think investors should view gold as a monetary asset rather than mere commodity as it carries a store of value in times of uncertainties.

So, you can take refuge under the precious yellow metal and add it to your portfolio from diversification point of view and thereby reduce the risk to your overall investment portfolio. At PersonalFN, we believe that, you should consider your investment time horizon and accordingly allocate 10% to 15% of your total portfolio towards gold. You see, gold is not an instrument to make quick money but a solid long term asset that offers store of value. Hence you should ideally invest in gold with a longer investment horizon.

So far over the last half-a-decade, with uncertainty looming around in the domestic and global economy, gold prices have scaled up and have remained elevated.

How do you think gold would tread its path with NDA Government taking charge. Would it continue to shine or lose its sheen? Share your views here.

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