I myself look into the fundamental aspect of gold and fundamentally gold is looking very strong. It is not just geopolitical concerns which make me believe that gold prices are going to go up. There are more reasons for us to remain bullish on gold. And the biggest reason for us to remain bullish on gold is the inflated level of the balance sheet of western central banks.
The Fed’s balance sheet has expanded from $4 trillion to $9 trillion and right now, hovering at $8 trillion. Before Covid, it was just $4 trillion. We are not going to see balance sheet reduction to the tune of $4 trillion or $3 trillion being pulled back by the Federal Reserve in the next one and a half, two years. Considering the size of the balance sheet of the global central banks and especially developed ones, US, UK, Europe and Japan, gold prices are highly undervalued right now. So I think these levels of $1800-1900 is something we are not going to see for a long period of time. Gold is about to take off and go into another trajectory. We are not going to see gold at $1800 in the next two to three years. We are going much, much, much higher than where we are right now considering the way the monetary expansion has taken place. Also central banks have been buying gold as a diversification of their reserves. No central banks are buying the US Treasury, which was a trend back in 2000 to 2012-15.
Nobody is buying US Treasuries, everyone is selling US Treasuries. Each and every central bank is buying gold. This year also, we are going to see 850 to 900 tons of gold being bought by central banks versus the 10-year average of 400 tons. All this points to a scenario where gold is heading towards $2300, $2400 in the next one, one and a half years duration.
I am talking about a 15-20% jump from here. I am expecting a very big bull run in gold in the next one and a half, two years.
Since you are quite bullish on gold prices going ahead and as a retail participant, experts always advise to go ahead and make a purchase whenever they get an opportunity in a dip. But that is easier said than done because when prices continue to fall for maybe two to three days in a trot, the expectations get higher. What staggered manner of strategy should they adopt?
Right now, gold is sitting at around $2,500 for futures and $1,990 for spot. If there is a de-escalation in the geopolitical events which are taking place right now, then we may see $50-$60 of correction. Any hawkish stance by the Federal Reserve or any of the major central banks may cause another $20-$25. So, this is the maximum downside.
So, we saw a surge in US bond yields and gold prices were trading at Rs 56,500. And nobody knew there was going to be a war between Israel and Hamas. Nobody predicted that. It is a complete black swan. And suddenly, gold is at from Rs 56,500 to 60,000. Please understand, gold is a strategic investment at this point. It is a must have. I do not understand why people do not understand that in this kind of scenario where there is actually a Cold War sort of scenario developing in the world, number one. Number two, there is no clarity on the monetary front for the central bankers, what they are going to do, whether they are going to cut the rates or whether they are going to increase the rates or what they are going to do with the rates, they do not know.
Third, if they continue to stay higher for longer, then what will happen to the bond yield? How are they going to service the interest? What do they have to pay on the bonds? So, it is a complete grey area developing on all aspects, on geopolitical, on financial and monetary fronts. So, gold is a strategic investment at this point. I do not worry about a fall of $100, $200, $100, $150. It is a must in your portfolio. Whether people like this level or not, these levels are going to stay for quite a long time. And I am very bullish.