Gold needs to be embraced as portfolio diversifier: Experts

The bullion metal lost Rs 2,562, or 4.68 percent, for the week on MCX as investors booked profit (Image courtesy: Reuters)

There is a need for investors to embrace gold as a portfolio diversifier and for hedging strategy especially in the current environment that presents uncertainties, according to experts. The yellow metal is expected to have a good run in the coming times as demand will emerge, and it should be seen as part of portfolio diversifier by an investor at this juncture, the experts said in a webinar on 'Gold Investment Opportunity and Price Outlook' organised by the PHD Chamber of Commerce and Industry (PHDCCI) on Wednesday.

"Demand for gold will grow in the future. Therefore, the industry should take certain measures to address the current low demand for gold," World Gold Council Managing Director (India) Somasundaram PR said.

Currently, as per the All India Gem And Jewellery Domestic Council, demand for gold is sluggish in the country following economic slowdown, job uncertainties and disruption caused by the coronavirus pandemic.

"Gold should be looked as a portfolio diversifier and is absolutely going to have a good run in the coming times as demand will come back," Somasundaram said.

The government must provide some relief measures like exemption of capital gains tax to provide impetus to the gold market in the coming times, he added.

Also read: Gold hit fresh high of Rs 50,703 per 10 gram, silver up 17.48% this week

PHDCCI President D K Aggarwal said the gold prices have significantly increased and crossed the level of Rs 50,000 per 10 grams, mainly on the back of disruptions caused by the coronavirus pandemic.

"The monetary loosening will continue in the coming times and drive the gold prices," he added.

Aggarwal said gold provides a hedge against currency fluctuations, and gold diversifies and stabilises investment portfolios in times of adversity.

MCX Head (Bullion) Shivanshu Mehta said that in the current time, negative interest rate environment, geopolitical risks and currency fluctuations will drive demand for gold in the coming times.

"There is a need to understand the physical and retail side of industry. We offer different bullion products for investors such as silver 1 kg contract, gold coin and gold petal, among others," he added.

Mehta said retail consumers are looking for more organised ways of investments and hence, the MCX is reforming from time to time to meet the aspirations of investors.

Meanwhile, Metals Focus Director and founder Philip Newman said the gold prices are expected to remain high in the coming times. Newman added that in some market, people are holding on to their gold amid high price expectations, while in other markets, they have been selling gold.

"The central banks around the world are not expected to follow tightening monetary policy anytime soon. There is still room for gold prices to grow further this year and the next year," he added.

Newman said the gold prices are expected to increase over USD 1,700 an ounce in the current year and to over USD 1,800 an ounce in the following year.

Bank of Nova Scotia Managing Director (Asia Pacific) for Metals Sunil Kashyap stated that gold should be seen as a diversifier in portfolio.

"It is the only overseas asset linked to US dollar, hedges against currency devaluation and equity market. About 60 per cent of the government bonds in the world are giving negative returns, therefore, people are valuing and taking gold seriously,” he added.

Kashyap said the governments across the world are pumping money into the economy, which is flowing in markets, bonds and gold markets, among others.