Gold driven by Sentiments

When Equities are undergoing correction, oil is slumping every day, realty is down the only price that is going up is Gold. 24 carrot gold touched 3700 yesterday and today its at 3728 rupees. This is normal when everything else is down, it indicates an increase in uncertainity and that means gold becomes safe haven.  As per analysts 10gm of gold could hit 40k by Dec 2019. 

There is an indelible relationship between price of Gold and Oil. When oil falls, gold will rise and when oil rises, gold will fall. This is not just co-incidence; there is a logical reasoning to this correlation between these two. Gold is used as a hedge against inflation which is spurred by oil - wen oil prices rise, gold prices also rise. But the anamoly here is that when oil prices fall along with equity, there is a need for investors to run to something rock solid, which will give the cushion from the fall. So when oil slumps, the need to use of yellow metal as a hedge comes down but becomes a tool of safe haven - demand for gold is more out of a sense of security though demand as hedging tool falls.

There is another school of thought - if oil prices rises, gold prices also rises as rising oil indicates inflation, which inturn leads to increase in price of all commodities.  Yet this is again not really waterproof correlation as in 2014, even when oil was over $100/barrel, gold was down. Thus one cannot say that oil prices and gold always move either in tandem or inversely. 

Gold is one commodity which is driven purely by sentiments - the moment there is uncertainty, global turmoil, fear of economies hurting or slowing, gold immediately shoots up. Gold is always an anchor against stromy weather, the go-to metal when the risk is high.

Experts say, have 5-10% of the porfolio in gold.  The problem with gold when we buy as ornaments if we have to rebalance our portfolio based on the networth, say if gold becomes 15% of the networth will we ever go and sell it.. So when investing in gold look for ETF,bond funds or severeign bond schemes so that rebalancing your portfolio becomes easy.