Should you buy gold this Akshaya Tritiya after the recent pullback?

Akshaya Tritiya this year, falling on May 10 (Friday), brings with it the auspicious tradition of buying gold. So, as the precious yellow metal has climbed a significant over 11 per cent year-to-date (YTD) after marking a new all-time high of Rs 73,958 per 10 gm on the MCX, as investors you may be wondering how to strategize your gold purchase this auspicious season.

In general, gold prices in the domestic markets are influenced by international gold rates and there are several factors at play influencing its trajectory including inflation, interest rates, geo-political situation and market dynamics among others.

Notably, while inflation in the US has come off, the progress has stalled off late. On the other hand, the US economy has dodged a widely anticipated recession and continues to signal resilience. This has given the Fed more reason and more room to keep interest rates higher for longer. Thus, the Fed in its recent May policy announcement, kept the policy rate unchanged in the range of 5.25% to 5.5% for the sixth straight time.

Ghazal Jain, Fund Manager, Quantum Mutual Fund is of the view that while a delay in interest rate cut is fundamentally negative for gold in the near term, the medium-term outlook for the metal is constructive.

“While the Fed continues to communicate its cautious stance on inflation and in turn rate cuts, it is to be noted that the Fed’s last summary of economic projections indicates that it anticipates 75 basis points of interest rate cuts to a range of 4.5-4.75% by end-2024.It is thus likely that the US central bank will cut rates to some extent and at some point in the second half of this year,” the expert added.

Burgeoning US fiscal debt and interest payments, and political pressure to support the economy in the run up to US elections could also influence the Fed to cut rates. Lower interest rates bode well for gold as they reduce the opportunity cost of holding non-yielding gold.

Gold’s correction from recent all-time highs

As the threat of a direct conflict between Iran and Israel has subsided for now and interest rate cuts from the Fed are expected to come later rather than sooner, gold has given up some of its recent gains which were driven mainly by risk aversion from geopolitical stress and optimism about looser monetary policy. 

Fundamentals supporting gold’s potential upside

Positive fundamentals given the backdrop of potential rate cuts by the Fed in the second half of 2024, lingering geopolitical conflicts in Eastern Europe and the Middle East, and strong central bank gold buying strengthen gold’s prospects going ahead.

Does Akshaya Tritiya offer the opportune time to buy gold?

“As such any pullbacks can be good entry points for investors to benefit from the upcycle in gold prices that is expected over the medium term. This makes this Akshaya Tritiya a conducive time for under-allocated investors to accumulate some gold and add to their long-term exposure,” notes Jain. Further, on the most efficient investment in gold, the expert advises investors to go for Gold ETFs or Gold Mutual Funds which invest in Gold ETFs as these are among the most price-efficient, secure, liquid, regulated, and accessible investment options.