Profiting from gold this Dhanteras
In India, buying gold is considered auspicious during Dhanteras and Diwali. This year, the custom can prove to be a smart investment decision. In fact, the price of the precious yellow metal has surged around 30 per cent on a year-on-year basis, data shows.
Hovering near all-time highs, the precious metal is among the performing asset classes since last Diwali with domestic gold prices yielding 32 per cent, as compared to S&P BSE Sensex’s 25 per cent.
It has been a year of economic and geopolitical tensions in several parts the world. Gold prices react positively amid such global challenges since it is is a safe haven asset. Further, major central banks have been accumulating gold after the Russia-Ukraine conflict broke out in February 2022, leading to a steady demand for gold.
“Gold is one of the best asset classes to invest in during high inflation, especially when the markets are volatile. Also, with the recent improvement in gold exchange-traded fund [ETF] taxation, where LTCG [long-term capital gains] tax is 12.5 per cent with only 12 months of holding [at par with equity], gold has become an attractive asset class,” said Varun Gupta, Chief Executive Officer of Groww Mutual Funds.
Also read: The rising popularity of gold ETFs across the world
Festive demand
According to the World Gold Council (WGC), despite gold prices touching record highs of Rs 79,000 per 10 grams, anecdotal feedback from industry indicates a resurgence in the metal buying due to various ongoing festivals. The demand is largely driven by investment sentiment and wedding-related purchases.
“The retailers have also invested in new designs and innovative usage of technology to make daily wear, lighter jewellery considering heightened gold prices, to invite consumers to come to their stores. There is also an expectation of increased demand from rural areas, driven by improvements in robust economy and consumption,” said Sachin Jain, Regional Chief Executive Officer (CEO), India, WGC.
Story continues below Advertisement
Also read: Smart ways to buy gold this Dhanteras 2024
The WGC is expecting gold demand uptick to continue beyond Diwali and till end of the year due to the upcoming wedding season.
Gold outlook
The rise in gold prices over the last one year has continued, despite the headwinds due to higher global interest rates. The prevailing trend can be attributed to concerns of an ensuing global economic slowdown, anticipation of looser monetary policies, geopolitical tensions and stock market volatility. And not to forget the customs duty cut, which reduced the returns by 9 per cent.
“Even as prices are currently elevated, fundamentals are looking supportive for gold investment this Diwali,” said Chirag Mehta, Chief Investment Officer, Quantum AMC.
According to Mehta, while gold has potential for attractive returns, it’s role as a portfolio diversifier will be equally relevant as the global macroeconomic and geopolitical situation remains uncertain over the next year.
Further, the upcoming wedding season in India is also expected to give a further push to gold demand.
“Gold has historically gone up during the Indian wedding season between November and February with a couple of weeks’ break till mid-January. Over the last 10 years the average return in the wedding season has been positive with about 4 per cent appreciation,” said Amit Goel, Co-Founder & Chief Global Strategist, Pace 360.
What should investors do?
As inflation and market volatility challenge global economies, gold offers stability and a hedge, making it an ideal option for long-term wealth preservation.
Palka Arora Chopra, Director, Master Capital Services, said, “For investors, a strategic allocation of up to 10 per cent in gold — whether in physical form or digital options like ETFs and gold mutual funds — can provide both growth and security.”
Quantum AMC’s Mehta suggested that staggered investments in gold ETFs would be a smarter way to build gold exposure.
Since gold acts as a hedge, an investor may have around 10 per cent allocation to it. However, understand that gold is volatile too; there are known long periods in history when it’s price hasn’t moved.
“MCX Gold is up around 30 per cent since last year. However, given the global situation we are in, it might rise even more. So, buying it in a staggered manner might make more sense,” said Nitin Rao, Head Products & Proposition, Epsilon Money Mart.
Experts also warned against heightened bullish inclinations towards gold at higher levels.
“Gold prices are currently hovering around their all-time high. While gold is always a good hedge to keep in your portfolio, at a high price as this, you can always take a calculated purchase decision, accounting for cost averaging,” said Saksham Malik, Founder, Rabbit Invest.