Gold's Evolving Role: From Speculative Asset to Portfolio Mainstay

In its June edition, Llama Research underscores a notable decline in gold's volatility, revealing an asymmetric response to interest rate hikes. This signals a structural shift in gold's role within global portfolios. Historically driven by speculative trades and short-term rate expectations, gold's current dynamics suggest a strategic transformation.

The report highlights, "Volatility in gold has declined. Its reaction to rate hikes is asymmetric. Trust, not yield, is becoming the core driver." Once seen as a tactical hedge against uncertainty, gold is now perceived as a structural asset. This transformation has altered investor perspectives, with gold increasingly regarded as a reserve-like asset.

Post-2020, gold demonstrates a fundamental shift in investor perceptions. Traditionally, rising real bond yields inversely correlated with gold prices. However, this relationship has weakened in the post-pandemic era, with gold prices defying conventional logic despite surging yields. Gold is evolving from a tactical commodity to a key reserve asset, according to Llama Research.

The yellow metal's newfound appeal lies in its stability as a store of value amid currency uncertainties, geopolitical risks, and waning confidence in fiat regimes. Central banks in emerging markets are ramping up gold purchases in response to geopolitical tensions and the weaponisation of the US dollar.

In India, gold recently crossed the Rs 1 lakh per 10-gram mark, reaching an all-time high. As of today, gold trades at 99,096 for 10 grams on the Multi Commodity Exchange (MCX), reflecting its strengthened position in global economic dynamics.

(With inputs from agencies.)