scorecardresearchAkshaya Tritiya: Should you buy gold even as prices remain elevated?

Akshaya Tritiya: Should you buy gold even as prices remain elevated?

Updated: 03 May 2022, 07:48 AM IST

The demand for gold has subdued to a much lower level among retail investors. However, analysts recommend buying both gold and silver on dips with the prices of both metals slated to go up. 

Will you be buying gold this Akshaya Tritiya?

Will you be buying gold this Akshaya Tritiya?

Akshaya Tritiya has a cultural significance of people making purchases as it is deemed auspicious. Many consider the idea to invest and buy gold.

The yellow metal has a lot of traditional and cultural significance not only owing to its value but also because of its extensive use in traditional ceremonies. Amidst the festive demand glitter, many investors ask if it is worth investing in gold. The question also comes in the wake of equities losing their charm as the markets tumbled in response to Fed rate hikes.

Many investors trust their investments in gold. Apart, the yellow metal is a concentrated portable asset that is considered worthwhile. This explains why gold is considered a haven for many centuries.

Has gold lost its shine?

However, since the beginning of 2022, the gold metal seems to have lost its charm among many investors. The demand for this metal has drastically come down with many market participants refraining from buying the metal in its physical form.

There are certain developments on the demand-supply scenario, like the India- UAE CEPA deal which will be effective from May 1, there is still some clarity lacking on its overall impact although, in one year around 200 tonnes of gold can be imported from UAE at a tariff reduction quota of one per cent lower import duty than India charges from the rest of the world. And in return, the export duty of five per cent on jewellery to the UAE will be waived off completely, this could create quite a spur as far as the physical market is concerned. On other hand, agriculture also plays a significant role in gold demand, and Skymet has forecasted a normal monsoon for this year which could also provide some base for demand.

Varying gold prices from May 2010 to March 2022

Analysts are optimistic about gold

Investments in gold are made for the returns and the fact that the metal acts as an effective hedge against sudden market movements and untamed inflation rates. Though the demand for gold has sized down considerably, the price of gold seems to hover around the 50,000 mark after a prolonged period of stagnancy. 

Both the Sensex and gold have moved from about 4100 to 4200 to about 50,000 in the last 21 years. 

Gold price: 49,659 per 10 grams on 21 Jan 2021 vs 4,234 in 1999

BSE Sensex: 49,625 points on 21 Jan 2021 vs 4,141 points on 30 Jun 1999

The appreciation in both gold and the Sensex is roughly similar over the past 21 years. Those who do not invest in stocks can regard gold as an effective alternative to effective wealth creation while using it as a shield to counter the untampered inflation rate. 

The price of 10 grams of gold which was 47000 during Akshaya Tritiya 2021 has now shot up to somewhere around 51,000 this festive season. Data have shown that the prices of gold have shot up by eight per cent year on year. Though the Russia-Ukraine war had a dampening effect on the gold, prices are expected to rise by the end of the year. The rising interest rates can have an adverse effect on gold prices though soaring inflation may prompt many investors to reconsider gold as an effective hedge against rising prices. 

Apart, the frequently shifting gold prices within a range are not enough to deny its rightful place in your investment portfolio. After all, previous data have highlighted how gold prices have remained stagnant for years only to increase in sudden and short bursts of price. For example, the price of gold rose the maximum during the past eight months, especially, over concerns regarding possible geopolitical tensions that wrapped the world’s famous stock markets in fear and apprehension while dragging them down to a considerable extent. 

A report by Motilal Oswal Financial Services Ltd says, “Spot Gold after touching almost the record highs is witnessing selling pressure on the higher range, holding strong around $1900. Although keeping in mind Fed’s aggressive stance and its impact on inflation, we could see some weakness for the next few quarters. Looking ahead, Gold on Comex could trade in a range of $1800 to $2050 for a 12-months perspective. On the domestic front, prices could trade in a broad range with critical support at Rs.50, 000 followed by Rs. 48,000 and Rs. 46,500, while rallies on the upside towards 55,000 would be opportunities to exit long positions."

The report, however, asks investors to focus on silver instead. "Our previous target for silver of 70,500 followed by 72,250 on the domestic front was met recently, but our bias continues to favour the silver’s bullish narrative. We advise buying silver on major dips towards Rs.64000-65000, with upside potential towards Rs.80000 followed by Rs. 88000. Similarly, on the COMEX, silver prices are expected to trade higher towards $26.45 and $27.15 with strong support placed at $24.20 and $23.70. With buying on dips strategy, the rally might extend over $30 on Comex over next 12 months.”

When it comes to investing for a long period, you must stay calm and not swayed by how the market behaves intermittently. Many research studies have pointed out how you must make sure to park at least five to 10 per cent of your portfolio in gold to average out the losses in the portfolio in the long run. This way even if the market falls, it acts as a perfect hedging tool. 

Also, investing styles have largely changed, which means that you may consider parking your money in gold mutual funds or gold exchange-traded funds instead of putting your money in bullions and jewellery and then carrying them back home. For example, those who had invested in Nippon India ETF Goldbees have earned roughly 23.8 per cent returns since its inception. 

If you want to invest in small bite sizes, gold mutual funds can be your best bet to invest in gold without investing a lot of money in it. For example, DSP World Gold Growth Direct Plan has earned nearly 18.55 per cent returns over the past three years followed by Invesco India Gold Growth Direct Plan which yielded around 17.16 per cent returns in three years. 

Investing a chunk of your money in Sovereign Gold Bonds is another option preferred by many investors.

Digital gold versus gold ETFs and gold bonds
First Published: 03 May 2022, 07:48 AM IST