Experts feel that these prices may sustain and even if prices of the yellow metal correct from current levels they may soon bounce back.
“Traditionally, when the US Fed cuts rates, gold prices tend to move up,” says Chintan Haria, Principal- investment Strategy, ICICI Prudential AMC about the surge in gold prices.
Gold prices have resumed uptrend and COMEX spot gold prices are nearing the all -time high levels made in December 2023. Gold prices at MCX are at an all time high crossing Rs. 65000 per 10 gram on strong domestic demand and supportive international cues according to data shared by Tata Asset Management. (The data is co-relevant to February 7, 2024.)
Also, the growing inclination of global central banks towards yellow metal over US Treasuries as a means of hedging portfolio risk could lend support to the yellow metal.
“Gold prices are currently getting support from two key factors: Macro economic environment, Geopolitical risk, apart from central banks buying (gold),” says Tapan Patel, Fund manager – commodities, Tata Asset Management.
Also Read: Muthoot Finance, Manappuram valuations turn attractive; rising gold prices add to tailwinds, says ICICI Securities
Gold prices have rallied since last one year on market and political stability risk due to heightened geopolitical factors despite higher interest rates. The geopolitical factors like major war may only have a longer impact on gold prices.
Analysts believe that the impact of current geopolitical risk premium will be short lived and prices may start to react to macro-economic developments going forward. The price movement of crude oil is a recent example of such a geopolitical risk premium due to the Russia-Ukraine conflict.
“The US Fed’s policy decisions and ongoing geopolitical uncertainty would be the key factors likely to drive gold prices in 2024,” says Hareesh V, Head of Commodities, Geojit Financial Services about the events that will drive the prices of gold this (calendar) year.
The US Federal Reserve’s communication regarding its policies and plans continues to sway investor confidence, as gold is considered a hedge against economic uncertainty. There is still uncertainty about the US Fed’s rate cut decisions.
Also Read: Gold and silver prices Today on 07-03-2024 : Check latest rates in your city
Experts feel that even if prices correct from current levels this correction will be short-lived and that prices will bounce back.
“Since gold prices are near record highs, there are chances of a correction possibly in the first half of 2024. However, a weak INR and expectations of jewellery demand would offer downside support and hence it may preserve its positive outlook for the rest of the year,” says Hareesh.
“Gold prices could continue to witness higher volatility in near term as may see intermediate profit booking moves of 4 – 5 % in the medium term perspective,” says Naveen Mathur, Director – Commodities and Currencies, Anand Rathi Shares and Stock Brokers.
However experts are unanimous that gold has appreciation value going forward and that the investor may certainly consider the yellow metal as part of their investment portfolio.
“Undoubtedly gold is the best long-term asset which offers safety and decent return to its investors,” says Hareesh.
Domestic gold prices have doubled in the last 5 years, and it surged more than 980 percent since 2003. Also, it has a steady demand for physical and investment purposes in the country.
“Hence, one can add 10 to 12 percent of his/her total portfolio in gold, but it would be ideal to buy during periods of price correction,” says Hareesh.
Mathur advises buying of gold in a staggered manner at every dip of 3 – 4 % in prices, with an exposure of 10-15 percent of their total portfolio with a time horizon of the next 1-2 years.
“Investors should look for optimum asset diversification and may look forward to having some exposure in gold,” says Patel.
Ways of buying the yellow metal
“One can consider investing in gold coins, bars, in terms of physical Investment or can even consider investing in ETF (exchange traded funds) on regular basis,” said Naveen Mathur, Director – Commodities and Currencies, Anand Rathi Shares and Stock Brokers about the ways that an investor may invest into gold.
Gold ETFs, as the name suggests, are listed and traded on stock exchanges where a demat account is required to invest in these schemes. Hence gold ETFs are safe investments that are governed by tight regulations. Other Investment options include investing in Sovereign Gold Bonds & Gold Savings schemes offered by Jewellers on a regular basis.
Advantages of investing in gold ETF
1. Convenience: Investing in gold by buying an ETF is much simpler and more transparent
2. Buy at spot price: The purchase price for most investors in case of buying physical gold is usually slightly higher, around 4-6% above spot, depending on whether we buy coins or bars, how many of them, the dealer we buy from and how much inventory there is in the market.
In contrast, a gold ETF allows us to invest in gold and pay almost spot prices. ETFs, like any other publicly traded investment product, have a bid-ask spread. Nevertheless, the bid-ask spread for most gold ETFs hovers around 0.5% or less. That makes buying and selling gold through an ETF much cheaper. Especially if we are considering getting in and out on a frequent basis.
3. Low costs: The annual management fee of a precious metals ETF varies depending on which one we select. However, they tend to be somewhere between 0.15-0.5% of the value of our investment. A very reasonable fee for the service and convenience they offer.
4. Liquidity: Both gold ETFs and physical gold are very liquid. We can sell pretty much at any time. And, since there are so many buyers and sellers in the gold market, we can trade large quantities without affecting its price.
But selling an ETF is much more convenient than selling physical gold since we can do it without leaving our home or making a shipment. It is as simple as entering a market order when the exchange is open.
Also Read: How do you choose between gold ETFs and sovereign gold bonds? MintGenie explains
Disadvantages of investing in gold ETFs
1. Counterparty risk: ETFs are exposed to counterparty risk. This means this type of gold investment loses one of the most important features of owning physical gold: being out of the financial system.
2. A gold ETF may not be fully backed by physical gold. Source – Anand Rathi Shares and Stock Brokers.
Sovereign gold bonds: Also one can also consider investing in sovereign gold bonds which are preferable over a longer horizon as also comes with a taxation benefit as compared to investing in physical gold which requires higher capital investment & also attracts tax.
The disadvantages of investing in sovereign includes long maturity period of 8 years, which some investors find discouraging. Also possibility of capital loss remains if the redemption price is lower than purchase price.
Gold savings schemes: Gold savings schemes offered by jewellers allow customers to invest in gold through monthly instalments. They typically run for 11 months, with the 12th instalment being free.
Customers make fixed monthly payments, and at the end of the scheme, they can purchase gold jewellery or items equivalent to the total amount saved. Others might offer discounts on making charges when purchasing jewellery.
Gold savings schemes, while appealing, have their share of disadvantages as these schemes restrict customers to purchase jewellery solely from the jeweller running the scheme, limiting their choices and flexibility in the market as getting a refund is almost not possible even if you want. There is the possibility of the jeweller going out of business, leading to loss of investment.
Also Read: Benefits of Applying for a Gold Loan: Navigating the Advantages and Cautions
Monetizing gold: Gold loans are always considered as an option to raise emergency cash as they are secured loans that can be availed from banks or any financial services provider by pledging your gold as collateral. The tenure is generally 6 months or 12 months where depending on the loan amount, one can select the duration of the gold loan.
Manik Kumar Malakar is a personal finance writer.
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Published: 07 Mar 2024, 05:24 PM IST