Gold Hits All Time High: Retail investors should proceed with caution, considering how much investment in gold is appropriate

Gold prices have seen a significant increase over the past 6-7 months. This increase has been driven primarily by expectations of a cut in key interest rates, persistent concerns about inflation, doubts about the long-term sustainability of US fiscal policies, ongoing geopolitical instability, and strong purchases of gold by central banks seeking diversification away from and reducing their dependence on the US dollar. Demand for gold as a safe-haven investment has further increased.

Gold recently surpassed the euro to become the second-largest global reserve asset. It now accounts for approximately 27 percent of central bank reserves, compared with 23 percent for the euro. 

Central banks currently hold approximately $4.5 trillion in gold, while their holdings in US Treasuries are approximately $3.5 trillion. This shift signals growing confidence in gold as a reliable store of value amid market volatility and global uncertainty.

Investors should exercise caution

Gold prices are at record highs. Investors should proceed with caution. Any delay in interest rate cuts or changes in geopolitical dynamics could slow or halt gold's rally. 

Nevertheless, investing in gold gradually is a wise move. Instead of aggressively buying gold, it's advisable to invest 10-20 percent of your portfolio in gold, depending on your individual risk appetite.

Gold prices may continue to rise if interest rates fall further

The US central bank, the Federal Reserve, cut key interest rates by 0.25 percent in its September meeting and also hinted at two more cuts by 2025. 

This development has made gold even more attractive. If interest rates are cut and inflation rises due to tariffs, gold could find support at higher levels. 

However, if inflation declines in the near future and US economic data improves, tighter monetary policy or a stronger dollar could put pressure on gold prices. 

In the long term, gold prices will be influenced by demand from central banks, geopolitical conflicts, US dollar trends, and trade policies.

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The website or its management is not responsible for them. Moneycontrol advises users to always seek the advice of a certified expert before making any investment decisions.