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What drives the price of Gold?

Geopolitical events

Trade wars and geopolitical uncertainties are increasingly leading to the risk of the world getting split into fragmented trade and financial blocs. This causes investors to invest in Gold which is perceived to be a “safe haven” asset.

Expectations around US Federal Reserve further cutting interest rates

When rate cuts are announced, the price of Gold tends to rise as the opportunity cost of holding the metal declines. Investors may move towards the precious metal over lower-yielding deposits, potentially boosting its price.

Central Bank Purchases and Global Demand

Gold purchases by Central Banks across the globe has been in an uptrend since 2022 (Source: World Gold Council), as Central Banks seek to diversify their Forex Reserves.

Hedge against Currency Depreciation

50% tariffs applied to select Indian imports and H-1B visa rule changes by the US Government has created uncertainty, leading to downward pressure on the Rupee. This is one of the various reasons leading to the depreciation of the Rupee. Investments in Gold can offer a buffer against rupee depreciation.

What lies ahead for Gold?

Gold can continue to benefit from:

Trade frictions and geopolitical tensions remaining high in an increasingly multipolar world
Central Bank buying as they diversify their reserves and reduce USD exposure
Increasing concerns around weakening fiscal positions across large global economies
Recovery in global gold Exchange Traded Fund (ETF) inflows leading to additional demand for physical gold
Anticipation of further interest rate cuts from the Fed

A smart way of getting exposure to Gold could be via investments in ETFs and Fund of Funds (FoFs).

ETFs can be traded on a Stock Exchange and require a demat account.
FoFs invest in units of the ETF and a demat account is not required to invest in FoFs.

Why investing digitally in Gold through HDFC Mutual Funds could be an option?

Convenience & Safety - Investors are saved from the hassle of physical storage themselves. HDFC Gold ETF holds physical gold and HDFC Gold ETF FoF invests in HDFC Gold ETF units.
Purity – HDFC Gold ETF holds physical gold with 99.5% fineness or above@.
Liquidity - For the ETFs, Market Makers provide liquidity on the Stock Exchange. For the FoFs, investors can invest or redeem units on a daily basis
Invest regularly with small amounts - Investors can set up SIPs into the ETFs as most brokers allow this feature. For the FoFs - SIP, STP and SWP facilities are available.

@Complies with Good Delivery norms as specified by SEBI Regulations. HDFC Gold ETF Fund of Fund investors also enjoy this feature as the FoF invests in HDFC Gold ETF units

SIP – Systematic Investment Plan, STP – Systematic Transfer Plan, SWP – Systematic Withdrawal Plan

Risks that you may want to consider

Price of Gold can experience volatility.
In a rising global interest rate scenario, gold has tended to underperform

Note: Investors in the Scheme (HDFC Gold ETF Fund of Fund) shall bear the recurring expenses of the Scheme in addition to the expenses of other schemes in which these Fund of Funds schemes makes investment (subject to regulatory limits).

Views expressed above are indicative and should not be construed as investment advice or as a substitute for f inancial planning. Due to the personal nature of investments, investors are advised to seek professional advice before investing.