Is this a good time to invest in gold? Here's what experts are saying

Post the Fed's 50 basis point interest rate cut in September, the yellow metal has been scaling record highs every day. And per a recent UBS report, its glitter is not going down anytime soon, with gold potentially touching $2,750 by the end of this year, and as much as $2,900 by the third quarter of 2025.

Treasury yields, or interest rates have always had an inverse relationship with gold, which is why the metal's demand witnesses a notable uptick, every time the Fed slashes rates. This is because an interest rate cut reduces the yields i.e. returns that investors earn by way of having funds in government treasury bonds. As a result, investors tend to withdraw their money, weakening the dollar, thereby making the yellow metal a lucrative investment option.

Going ahead, the markets are anticipating that the Fed will further bring down interest rates again, by around 75-100 basis points by the end of this year. As the CME FedWatch Tool indicates, there is now a 62.2% chance that the Fed will cut down interest rates by another 50 basis point during its meeting in November. This is also why gold prices have been seeing a healthy growth in both domestic and international markets. According to a report by Angel One, the demand of safe-haven gold is only set to go up in the months to come.

Apart from Fed's rate cuts and the upcoming US elections, there are tensions brewing globally on the geo-political front, with militant group Hezbollah's leader Sayyed Hassan Nasrallah killed in a powerful airstrike in Beirut. This has dealt a heavy blow to the Iran-backed group, as it reels from an escalating campaign of Israeli attacks. "In such times, zero-yield bullion tends to be a preferred investment, more likely so in a low-interest rate environment and also, during geopolitical turmoil", the note added.

Momentum set to continue

The bullion recently touched an all-time high price of $2,670 on September 24th, 2024, and has rallied as much as 10% during the past 6 months. Closer home, we are approaching the festive season, as India gears up to celebrate festivals like Diwali (Dhanteras) and Akshaya Tritiya in October. These have long been associated with heightened gold purchases in the country. Particularly, Dhanteras sees a surge in gold buying as it is considered an auspicious time to acquire new assets, majorly gold.

As the UBS report states, "the metal's current elevated starting point provides increased scope for gains in the coming months, particularly as ETF demand accelerates. We recommend gold as a strategic hedge within a diversified portfolio, suggesting a 5% allocation to the precious metal".

Alekh Yadav, Head of Investment Products at Sanctum Wealth, also advises making some allocation to gold in your portfolio, since gold has a negative correlation with equities; whenever equity markets correct, gold typically performs better. Given that US markets are currently at elevated valuations, gold can serve as a hedge against potential global equity corrections, he explains.

"In conclusion, we believe that some allocation to gold, even at current levels, makes sense as a hedge against global risks", he continues.As a thumb rule, you should always have at least 10% allocation to gold via digital gold, sovereign gold bonds (SGBs) etc., since it serves as an effective hedge against inflation.

However, in times such as these, increasing your investments in gold might not be a bad idea as well. But remember, over-investing in gold is also not advisable, since the asset class does not generate high-returns, which means a significant potion of your money could be stuck in a non-yield generating asset, when it could have been in equities or other assets, which generate comparatively more returns.