Gold prices have nearly tripled over the past 9 years, rising from Rs 24,740 in 2015.This follows a similar pattern observed in the previous 9-year period, when the price tripled from Rs 8,250 in 2006. Going back further, it took approximately 19 years for the gold price to triple from Rs 2,570 per 10 g in 1987, preceded by tripling cycles of around 8 years and 6 years, states an ET report by Naveen Kumar.
If the price continues to triple from its current level, gold could surpass the Rs 2 lakh per 10 gram mark. However, investors are keen to know how long it will take for the price to reach this milestone. Here is what experts have to say on future returns and timeline for gold to hit the Rs 2 lakh level:
Gold Prices Outlook:
Gold prices are sensitive to global events, such as geopolitical tensions and economic crises, which can cause rapid increases in relatively short periods. In the past 5 years, factors like rupee weakness, geopolitical issues, the pandemic, and war have contributed to a 75% increase in gold prices, from Rs 40,000 to over Rs 7,00,000, in just 3.3 years. In contrast, from 2014 to 2018, gold prices only increased by 12%, from Rs 28,000 to Rs 31,250.
Also Read | Important updates for NPS subscribers: New charges and security measures announced by PFRDA
Jateen Trivedi, VP Research Analyst at LKP Securities, states, “Historical data shows that major global changes, such as geopolitical tensions and economic crises, can significantly influence gold prices, leading to rapid increases within relatively short periods. The recent past of 5 years has shown rupee weakness as well as geopolitical issues and pandemic and war. All these together have given gold a spurt from Rs 40,000 to Rs 7,00,00+ — a gain of 75% in a matter of 3.3 years. In 2014, gold price was Rs 28,000 and in 2018 it was Rs 31,250, which is only 12% in a matter of 5 years.”
Trivedi also suggests that gold prices could potentially reach Rs 2 lakh within the next 7-12 years, given recent trends.
Some experts, like Surendra Mehta, National Secretary of the India Bullion and Jewellers Association, are even more optimistic about gold prices tripling and crossing Rs 2 lakh. Mehta believes that escalating geopolitical tensions between Iran and Israel after Ramzan, as well as China-Taiwan tensions, could bring uncertainty and lead to de-dollarisation. He predicts that these factors, along with heavy paper trading of gold in SGE and Comex, could cause gold prices to triple within the next 6 years.
However, it’s important to note that the tripling period for gold prices can vary significantly. Vikram Dhawan, Fund Manager and Head – Commodities at Nippon India Mutual Fund, points out that there has been an instance where the tripling period extended to almost 19 years. Dhawan reminds us that gold, like any other asset, is subject to bull and bear markets, leading to variable annual returns.
He states, “Like any other asset, gold is subject to bull and bear markets, leading to variable annual returns. However, as long as there is no better alternative, gold will continue to be in great demand from consumers and investors alike, hopefully rising to meet their return expectations.”
Also Read | New mutual fund KYC rules: Is your KYC validated, verified, registered or on hold? Find out
Gold is widely regarded as one of the most effective hedges against inflation. According to Harsh Gahlaut, Co-founder and CEO of FinEdge, “Gold price is directly correlated to inflation. Inflation has been high across geographies and will take time to cool off. As long as inflation remains high, gold prices will continue to get support and see an upward trend in the future.”
The trajectory of inflation will also play a crucial role in determining the pace at which gold prices increase. Hareesh V, Head of Commodities at Geojit Financial Services, explains, “Inflation and gold prices often have a complex relationship. Gold is often seen as a hedge against inflation because its value tends to hold relatively steady or even increase during times of inflation.”
In addition to inflation, various other factors also contribute to the fluctuations in gold prices. Dhawan elaborates, “When inflation rates rise, the purchasing power of fiat currencies decreases, leading investors to turn to gold as a store of value, thus driving up its price. This relationship is complex and not always direct, as other economic factors can also impact gold prices during periods of high inflation.”
The availability of gold has remained consistent, and any sudden increase in demand has the potential to drive prices higher in the short term. “The total supply of gold is limited, which is the one reason the metal is considered a valuable asset. The supply of gold comes from two main sources — mining and recycling. The amount of new gold mined each year is relatively stable. The rest of the demand is usually met by recycling scrap gold,” says Hareesh.
The growing demand from central banks is expected to persist and may contribute to rising prices. “There has been large-scale buying from some large central banks as they are considerably increasing their gold holdings — like Russia, China, India, etc. Since the supply of gold is limited, this increase in sovereign treasury holdings will continue to put pressure on supply and will support gold prices. We do not see the supply-side pressure easing in the near future as the risk of geopolitical conflicts does not seem to be easing,” says Gahlaut.
Also Read | Using a credit card? From usage beyond limit to overlimit fees – top queries answered based on RBI’s new FAQs
While jewellery has traditionally been a significant driver of demand, it may not continue to play the same role in the future. However, the demand for bullion is anticipated to increase. “I can see that in a country like India, gold is converting its orbit from consumption item to investment item at a much faster pace. So, sale of jewellery will keep dropping with improved sale of bullion due to financialisation of gold,” says Mehta.
The shifting dynamics of the global landscape may have a lasting effect on the trajectory of gold prices. Dhawan suggests, “A decline in the credit rating of the US, whether actual or perceived, may propel gold into a multi-decade bull run. Re-globalisation leading to competitive currency devaluations, along with trade disputes, is conducive for gold prices. On the positive side, bigger and wealthier emerging economies that have a cultural affinity towards gold, like India, may lead to a material increase in gold consumption, underpinning the prices.”
If the present situations persist or intensify, gold prices are expected to surge even higher. Gahlaut states, “Any escalation of regional or global conflicts, outright wars breaking out, and dollar domination coming under pressure as a global currency can lead to a spike in gold prices. While returns from gold are not linear, gold will continue to play an important role as a risk reduction tool and as a hedge against inflation.”
The implementation of ESG regulations could potentially cause a significant decrease in the supply of gold. Dhawan explains, “The strict adoption of environmental, social & governance (ESG) rules worldwide is a threat to gold production. This is because gold mines are among the most expensive and most toxic places.”
Gold prices: What should investors do?
When considering whether to link your investment strategy to the rapid tripling of gold prices, it’s essential to approach the decision with caution. “In conclusion, the trajectory of gold prices will be shaped by a combination of economic indicators, geopolitical events, and market sentiment. While predicting exact price movements is challenging, the fundamental role of gold as a safe-haven asset suggests continued potential for growth in the future,” says Trivedi.
Incorporating gold into your investment portfolio can be a wise choice for diversification purposes. “Diversifying investments and considering different assets, including gold, can help mitigate risks associated with inflation. During deflationary phases, gold tends to perform well compared to most asset classes,” says Dhawan.
Also Read | Mutual Fund KYC issues: What problems are MF investors facing with new rules and how they can check their KYC status
However, it’s crucial not to base your entire gold investment strategy solely on the expectation of its tripling potential. “While it is impossible to predict how long gold will take to triple from the current level, it is important to note that as an asset class, gold plays a critical role as a hedge against inflation, volatility, geopolitical and currency risks and, therefore, will remain an important part of asset allocation in a person’s portfolio,” says Gahlaut.
Investing in gold can be beneficial at any time when you are aiming to diversify your investment portfolio. Nevertheless, as the price of gold continues to rise, there may be opportunities to purchase gold during dips in the market. “Higher prices may eventually lead to reactions from the supply side. However, as gold is under-owned and global gold ETF holdings are at a five-year low, pullbacks may bring in dip buying from investors. Moreover, central banks continue to be net buyers,” says Dhawan.