How Will Inflationary Pressure Drive Gold Rates: Importance Of Diversification

Gold in the Comex has seen more than 10% gain in the past 1 year, and the yellow metal is attracting investors' eyes. The 52 weeks range of gold rates in the Comex futures stood in the range of $1,676.50 - $2,072.00/oz. Significantly, gold is a hedge against inflation and with high inflation, gold rates will surge. In the USA, the headline inflation is standing at a 40 years high range, which is one of the reasons behind the present rally of gold.

However, the US Fed has recently hiked the interest rate by 25 bps to control the inflation rate. But, Steve Hanke, professor of Applied Economics at Johns Hopkins University told Kitco News that the gold market is still bullish because investors and traders realized that the 25 bps rate hike will not be able to control the inflation rate. Additionally, Hanke thinks that the inflation rate will remain in the 6% to 9% range until 2024. Additionally, the US high inflation is not transitory, as it seems. Steve Hanke also emphasized on the matter that the "narrative that inflation has been caused by supply chain problems is simply false. Rather, inflation is caused by an increase in the money supply." So, with the hike in CPI inflation, the gold market will stay surged.

Additionally, gold, as a precious metal is a US Dollar dominated asset class, and the movement of the Dollar index leads the gold market. At present, both the US Dollar and gold rates are increasing in the international markets, due to the geopolitical crisis. It is an exception, where both US Dollar and the yellow metal are staying bullish. The Russia-Ukraine uncertainties made investors much worried. Both crude oil and gold rates recently moved around the all-time high range.

In India on the other hand, in February gold rates gained by 4.70% more than the last month, this year. At the end of February, Russia started invading Ukraine triggering a global geopolitical scenario and the markets reacted immediately. Anticipating a crisis in the equity markets, the commodity markets started to rally. Investors are tracking the markets, and they are far more interested to hold gold in their portfolios now. Investors have realized that, apart from equities, it is very important to diversify their portfolios and have at least 15-20% gold.