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Is the gold rally sustainable?

ICICI Securities 15 Mar 2022

What’s Buzzing:

Gold (a traditional safe haven asset class) prices have surged on risk aversion in global equities and touched new highs on the international as well as domestic bourses. The question is whether this rally is sustainable and should investors continue their exposure to the yellow metal?

Context:

Gold, as an asset class, has underperformed over a decade as international prices stayed broadly below $2000 over several years. The recent surge in prices have been accentuated by geopolitical issues and spiraling inflation concerns. Technically, there are clear signs of a new structural uptrend emerging after a breakout from decade long range as rallies are impulsive while corrections are shallower.

Our Perspective:

We expect gold prices to gradually head towards $2400 over the next couple of years and the uptrend in international price to remain as key driving factor behind domestic gold prices as well. Meanwhile, strong support exists at $1770. We do not expect it to be breached in case of declines. Investors should, therefore, continue to allocate part of their investment to gold as a hedge against inflation and for diversification of the portfolio.

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