Golden era? Yellow metal may give up to 25% return till FY23

While markets have been hit hard as COVID-19 has dealt a severe blow to the global economy, gold has been glittering due to its safe-haven appeal.

Apart from occasional decline, gold has been trading near its highest level and experts believe that the yellow metal will stay firm as weak global economic releases and fears of the economic recession continue to support its safe-haven appeal.

As per Reuters, gold eased back on May 8 from its highest in nearly two weeks, as investors grew hopeful about economies reopening after COVID-19 lockdowns, but a continued wave of central bank stimulus kept bullion on course for a weekly gain.

Historical data show, gold has outperformed other asset classes in 5 out of 10 calendar years, highlighting the importance of having the yellow metal as part of one’s portfolio.

Will the trend continue?

Brokerages are optimistic about the prospects of gold due to monetary debasement by central banks and poor health of the global economy. They expect the metal's price to shoot up sharply.

Kunal Shah, Head - Commodity Research at Nirmal Bang underscore that gold has already outperformed all asset class and it is likely to be one of the best investment options as massive monetary debasement by Western Central Banks and the looming uncertainties over the health of the global economy may add more glitter of Gold.

"I am conservatively expecting 15 percent returns in gold futures each year for the next two years and if the real economy doesn’t pick-up the way stock markets saw an up-move, then Gold will glitter and shoot up," Shah said.

Jigar Trivedi, Research Analyst- Commodities Fundamental, Anand Rathi Shares & Stock Brokers said that this is the time of gold.

"Since the virus has come out of China, the world leaders have spoken of punishing China and trade tariffs are the best weapons the US/EU can use against China. The Eurozone and Australia have also echoed the same anguish. Hence amid world over financial downturn, trade tiffs and atmosphere of easing money we expect the yellow metal to outshine other asset classes," Trivedi said.

"Moreover this year is an election year in the US- a political risk. Hence even after a strong rally in 2019, we believe the yellow metal will stay positive in 2020. It might be possible that the yellow metal may see profit booking in 2021 but still will be a safe bet to keep gold in one's portfolio," Trivedi added.

Hareesh V, Head Commodity Research at Geojit Financial Services believes gold can offer an average annual return of 15-20 percent in the coming years till 2023.

Prathamesh Mallya, Chief Analyst - Non-Agri Commodities and Currencies, Angel Broking is also sure about a double-digit return from gold.

"Gold will outperform other asset class is a question which will depend on the economic scenario across the globe. One thing remains sure, gold will continue to clock double-digit returns in the next couple of years. It will give returns of at least 15 percent annually in the next two financial years," Mallya said.

Sriram Iyer, Senior Research Analyst at Reliance Securities also expects gold to outperform other assets like equities and bonds as unprecedented quantitative easing from global central banks, low-interest rates and expectation of a global recession will prompt investors to switch to gold or even silver from equities and bonds in the longer run.

Gold could some correction after economies open and hopeful investors rush to buy equities and bonds.

Iyer of Reliance Securities said gold could correct in the short-term by 8-10 percent this FY21 as several countries are slowly easing restrictions imposed to curb the spread of the novel COVID-19 infections. Recovery in the US Dollar as investors continue to have faith in the US currency could also keep a lid on prices.

However, Iyer added that business will take time to recover from this pandemic as the economic impact from this pandemic is extremely severe.

"After the brief correction, we do see recovery in gold prices and could show returns of 20-25 percent this FY21. FY22 will be different as global growth will continue to remain weak as many economies will be undergoing a recession, which will investors pile up gold and could expect a return of 22-25 percent," Iyer said.

The ideal size

Analyst of the brokerage firm Nirmal Bang suggests 15 percent of a total portfolio should be invested in gold.

On the other hand, Anand Rathi suggests 8 to 10 percent of the total portfolio in the form of gold.

Geojit Financial Services recommend investors to keep 10-15 percent of their total capital in gold.

Angel Broking said while the ideal size is 10 percent of the entire portfolio, in the current scenario one can have 15 percent allocation of resources in gold.

Reliance Securities recommends keeping 5-8 percent of precious metals in their portfolio. "However, if the investor risk appetite is higher, one could choose to keep 10-12 percent of precious metals in their portfolio," it said.