Akshaya Tritiya is considered as one of the auspicious days in India to make new investments. Gold is one of them. Market watchers believe that spot gold may trade in a broad range despite over a 6 per cent rise in prices in 2022 till April 28. Earlier, the yellow metal declined by more than 4 per cent in 2021.
Overall, prices of yellow metal were rangebound for much of the past year before the Russia-Ukraine war. Since February 2022, gold prices witnessed a sharp uptick buoyed by its safe-haven demand amid increased risk-aversion owing to geopolitical tensions, surging global inflation and concerns over slowing global growth amid supply-chain disruptions. Depreciation of the rupee against the US dollar also boosted domestic prices to some extent.
According to Motilal Oswal Financial Services, gold prices have historically inched higher during the times of Akshaya Tritiya (see chart). Although amidst the rising anticipation of the Fed’s aggressive policy stance this year, gold may see some pressure going ahead.
“Prices could form a broad range until and unless overall uncertainties are not settled, hence some recovery could be seen in the prices although we believe these rallies on the higher may not sustain and it should be used to exit from the long positions,” Motilal Oswal Financial Services said adding gold prices could find immediate support at Rs 50,000 followed by 48,000 and Rs 46,500.
“Rallies on the upside towards Rs 55,000 would be opportunities to exit longs positions,” the brokerage added.
Dhaval Kapadia, director-managed portfolios, Morningstar Investment Adviser India said, “Gold is likely to find support over the near term supported by geopolitical tensions, the likelihood of a stagflation scenario (low growth and high inflation) and on recovering local demand. However, this could be overweighed by aggressive tightening by major global central banks to tame the persistently high inflation, and de-escalation in geopolitical concerns could lead to a decline in risk-aversion weighing on gold prices. Further rising interest rates are negative for gold as the cost of holding it rises, besides gold is non-income generating asset.”
Swapnil Bhaskar, head of strategy, Niyo added that inflationary pressure is not expected to come down soon which may lead to underperformance of equity assets and diversion of funds to gold assets. Thus, gold which has given about 17 per cent annualised return in the last 3 years is expected to shine further.
How to invest in gold
Market watchers believe that investors should give 5 per cent to 10 per cent exposure to gold in their portfolio for diversification benefits. One can take exposure to gold either via physical gold, digital gold, gold ETFs or via Sovereign Gold Bonds (SGBs).
“Physical gold is purchased mostly for jewellery and is typically not favoured as an investment option given it entails costs such as making charges, storage costs etc., adding to the investment cost. Moreover, holding gold in its physical form at home is fraught with risks. Physical gold is typically purchased in multiples of 1 gram,” said Kapadia.
Digital gold is a virtual method of investing in gold, without having to physically hold the gold and can be purchased for as low as Rs 1. Digital gold purchased is 24k gold and the buyer is assured of purity as it is certified by licensed agencies. It is stored in insured vaults by the seller on behalf of the buyer. Digital gold can be sold online, or buyers can even exchange it and take delivery of physical gold.
Sovereign Gold Bonds (SGBs) are issued by the RBI and are substitutes for holding physical gold, offering the investor an interest of 2.5 per cent per annum (paid semi-annually) besides the potential to benefit from price appreciation. SGBs have a lock-in of 5 years (total tenure of 8 years) from the date of issue. They are listed on stock exchanges and can be traded among market participants subject to liquidity which could impact investor returns. Capital gains on maturity are exempt from any tax for individuals.
While commenting on gold ETFs, Kapadia added that they aim to track the performance of gold, and like other ETFs are traded in the secondary market. Investors can buy and sell ETF units in the secondary market at any point in time, subject to available liquidity. Investors not holding a demat and trading account can invest into gold funds which in turn invest into the underlying ETFs, but levy an expense ratio in addition to the expense of the underlying gold ETF.
Priti Rathi Gupta, founder, LXME, a financial platform for women, said, “5-10 per cent of your portfolio should be dedicated towards gold as it ensures averaging out any losses in the portfolio in the long term, during market falls, acting as a hedging tool.”
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