It is considered auspicious to buy gold this time of the year. But unlike previous years this year inflation is on record high and it is not expected to slow down anytime soon with major central banks increasing their interest rate to contain inflation. Moreover, war and COVID issues are hitting the world growth and agencies are downgrading the world GDP. In such a scenario should you buy gold now? How much return can gold give in FY 2023?
According to India Bullion and Jewellers Association’s (IBJA) website the price for 999 purity gold was Rs 51,340 per 10 grams on Monday, down from Friday’s closing price of Rs 52,055. The experts, however, are upbeat about the yellow metal with expectations of giving higher returns in long term.
Vandana Bharti, assistant vice president, commodity research, SMC Global says, “Gold is getting mix triggers but the bias should be of upside. We can expect $2150 in dollar terms and on MCX Rs 56000-58000 should be the target.”
Bharti adds, “One must keep it in portfolio as insurance of portfolio due to ongoing uncertainty. ETF and central banks buying have been increased and most likely to continue the same trend in future. Any pause in equity market will give a boost to the gold prices, however one should track the move of dollar index and US treasury yield, both are making multi years high which is pressurizing gold prices.”
Experts say higher inflation will continue to make it attractive, especially when economy is hitting hard due to COVID and war. Motilal Oswal Financial Services report states 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.
“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,” said the brokerage house.
How to buy digital gold
You can buy gold Exchange Traded Funds (ETFs) through your demat accounts. They are easy to buy and sell just like shares which also gives them high liquidity. How is it taxed? If sold after three years, ETFs are considered as long-term capital gain and taxed at 20 per cent post indexation. If sold before three years, then it is considered as short-term capital gain and taxed according to your income tax slab.
If you do not have a demat account then you can buy gold mutual funds. Here, NAVs are declared daily at the end of trading hours. However, they are costlier than investing in gold ETFs as you have to bear the cost of both gold ETFs and gold funds. The taxation is similar to gold ETFs.
Sovereign Gold Bonds
Given the benefits of digital gold, one can consider buying Sovereign Gold Bonds (SGBs) when the next tranche opens. SGBs are securities denominated in grams of gold, which are issued by the Reserve Bank of India (RBI) on behalf of the Government of India. What sets SGB apart from other digital assets is the fact that it also offers an interest rate of 2.50 per cent per annum. For example on 10 gm of gold, assuming worth Rs 50,000, you will also receive interest of around Rs 1,250 per annum. At the time of maturity, the gold value at current market prices is returned along with the interest income.
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 subject to liquidity which could impact investor returns. Moreover, capital gains on maturity are exempt from tax but interest income is subject to tax under income from other sources.
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