Gold prices have surged to unprecedented levels, marking a significant milestone in the precious metals market. Spot gold climbed to reach $3,698.00 per ounce, setting a new all-time high, with Indian futures trading near ₹1.10 lakh per 10 grams.

Jefferies' Christopher Wood Bullish on Gold and Bitcoin

Christopher Wood, Jefferies' Global Head of Equity Strategy, has expressed strong bullish views on both gold and Bitcoin as long-term hedges against dollar debasement. Wood allocates 10% of his global equity portfolio to gold mining stocks and 6% to Bitcoin.

Wood had set a $3,600.00 target for gold in 2002, which has now been achieved. He believes gold has entered a new trading range after breaking above $3,500.00 per ounce. Wood highlighted gold mining stocks as particularly exciting due to higher gold prices and lower energy costs.

Bitcoin Outlook

Regarding Bitcoin, Wood views the current consolidation phase as healthy and expects the next major move to be upward. He noted a demographic divide, suggesting millennials may prefer Bitcoin over gold, though he would choose gold if forced to pick one asset due to its historical track record.

Dollar Weakness and Federal Reserve Expectations

The surge in gold prices is largely attributed to a weakening U.S. dollar. The greenback is currently trading near a 2-1/2-month low against the euro and hovering close to a 10-month low versus the Australian dollar. This dollar depreciation makes gold more attractive to holders of other currencies, potentially driving up demand.

Market participants are keenly anticipating the Federal Reserve's next move, with expectations leaning heavily towards a rate cut. Traders are pricing in an almost certain 25-basis-point reduction at the upcoming September 17 meeting. There's also a slim possibility of a more aggressive 50-basis-point cut, though this remains a less likely scenario.

Impact of Lower Interest Rates

The prospect of lower interest rates is particularly bullish for gold. As a non-yielding asset, gold becomes more attractive in a low-interest-rate environment. When rates are cut, the opportunity cost of holding gold decreases, potentially spurring increased investment in the precious metal.

SPDR Gold Trust Holdings Increase

Reflecting the growing interest in gold, the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, reported an increase in its holdings. The trust's gold holdings rose by 0.21% to 976.80 tonnes, indicating a rise in investor appetite for the precious metal.

Performance of Other Precious Metals

While gold stole the spotlight, other precious metals showed mixed performance:

As the Federal Reserve's decision looms and currency markets remain volatile, all eyes will be on gold to see if it can maintain its record-breaking momentum.

Gold has emerged as a standout performer in the investment landscape, delivering an impressive 50.10% return over the past year. This remarkable rally has significantly outpaced the domestic equity market, with the Sensex experiencing a 1.20% decline during the same period.

Central Bank Purchases Drive Gold Rally

The surge in gold prices has been primarily fueled by central bank purchases, which account for approximately 25% of gold buying. This trend reflects a growing shift among countries seeking to reduce their dollar exposure and turn to gold as a reliable store of value and hedge against currency debasement.

Global Uncertainty Boosts Safe-Haven Demand

Ongoing tariff wars and global economic uncertainty have further bolstered the demand for safe-haven assets, propelling gold to new heights. On the Comex, gold reached a historic all-time high of $3,715.20 per troy ounce, while silver surpassed $43.00 for the first time in 14 years.

Recent Price Movements

Despite the overall positive trend, gold prices recently experienced a decline in domestic futures markets:

• October gold futures dropped ₹148 or 0.14% to ₹1.09 lakh per 10 grams on MCX
• December contracts declined ₹111 or 0.10% to ₹1.10 lakh per 10 grams
• Internationally, Comex gold for December delivery was down 0.10% at $3,682.72 per ounce

Factors Influencing Current Market

The recent decline follows weak global cues as investors remain cautious ahead of the US Federal Reserve's policy meeting. Traders largely expect a 25 basis points rate cut amid signs of a slowing US labour market. Analysts noted that gold witnessed profit booking after hitting all-time highs, but losses remained limited due to weak US jobs data, rupee depreciation, and expectations of monetary easing.

Gold Outperforms Sensex Across Multiple Time Frames

Despite short-term fluctuations, gold's superior performance is not limited to the short term. The precious metal has consistently outpaced the Sensex across various time horizons:

Portfolio Allocation and Future Outlook

Analysts recommend a 10-15% portfolio allocation to gold. However, they caution that future returns may be less dramatic following the recent 38% price surge. The current Sensex to Gold ratio of 0.76 suggests that equities may outperform in the coming three years. Historical data indicates that when this ratio falls below 0.8, the Sensex has delivered average forward returns of 25.12% compared to gold's 7.21%.

Balancing Act for Investors

While gold's recent performance has been stellar, investors should approach their portfolio allocation with a balanced perspective. The historical cyclical nature of asset performance and the current Sensex to Gold ratio hint at potential opportunities in the equity market going forward.

As global economic uncertainties persist, gold continues to prove its worth as a valuable component of a diversified investment strategy. However, investors should remain vigilant and consider the potential for mean reversion in asset performance when making long-term investment decisions.

Market participants are currently awaiting inflation readings, industrial production, and retail sales data for further direction. Geopolitical tensions in the Middle East and Eastern Europe, alongside ongoing US-China talks in Madrid, are adding to market caution and may continue to influence gold prices in the near term.