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Business News/ Money / Personal Finance/  Gold likely to be range-bound in near term, avoid going overboard: Quantum MF
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Gold likely to be range-bound in near term, avoid going overboard: Quantum MF

Positive fundamentals and conflicting macroeconomic developments are expected to keep gold prices range-bound

Gold struggled for most of July but regained those losses by the end of the month. (REUTERS)Premium
Gold struggled for most of July but regained those losses by the end of the month. (REUTERS)

NEW DELHI : Positive fundamentals and conflicting macroeconomic developments will keep gold prices range-bound in the near term and investors should avoid going overboard in the asset class, according to Chirag Mehta, senior fund manager–alternative investments, Quantum Mutual Fund.

The yellow metal struggled for most of July but regained those losses by the end of the month.

Gold moved up by about 2% to $1,815 against the backdrop of a dovish US Federal Reserve’s statement and weaker-than-expected US economic data taking a toll on the dollar. The US GDP expanded at a 6.5% annual pace in the second quarter, well below market expectations.

Meanwhile, talks of monetary tightening by the Federal Reserve in June knocked gold even lower to mid-$1,700 levels. According to the expert, the sell-off was unwarranted as interest rates in the US are set to stay at near-zero levels till the end of 2022 and any stimulus tapering would depend on how the economy behaves.

Moreover, progress on the vaccination front, and improving global macroeconomic situation has favoured risk assets and left gold sidelined despite favourable fundamentals over the past few months.

“In an ideal scenario, the Fed would taper asset purchases and hike rates at the right time to keep inflation controlled, while helping economic growth remain stable and robust. But that isn't going to be easy to achieve. It's more likely that the Fed will land up doing too much, too early, or too little, too late." said Mehta.

“In the first scenario, the economic recovery is negatively impacted. In the second, inflation worries come to the forefront. In both these scenarios, gold is set to benefit," he added.

In its latest monetary policy announcement in July, the central bank left its benchmark rate unchanged in the range of 0% to 0.25% as was expected and would continue its $120 billion monthly bond purchases.

The expert suggested that investors can gradually build and maintain a 10-15% exposure to this asset class.

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Published: 04 Aug 2021, 04:13 PM IST
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