After giving a return of 23.74 percent in 2019, gold is likely to continue its upward trajectory, and prices are likely to touch $1,800/ounce, or around Rs 50,000-55,000 per 10 gram in rupee term by the end of 2020. The prices are likely to shoot up in the next two-three years with fear, speculation and uncertainty around the current economic situation.
The precious metal has gained Rs 6,794, or 17.31 percent in 2020 so far.
The precious metal has so far given a return of 15.19 percent in 2020.
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In an interview with Moneycontrol, Dr Saurabh Gadgil, Managing Director - PNG Jewellers, recommended buying the precious metal in systematic investment plan (SIP) mode. A price of around $1,600 level or Rs 41,000 could to be a good entry point, he added.
The precious metal known to be anti-inflationary retains its purchasing power parity during a global economic crisis. Gold has good liquidity right now and from the safety perspective seems to be the only option in front of people. History has proven that during any war, or any other crisis, gold has always proven to be the option where people have decided to park their investments in.
The average Indian retail investor’s holding of gold is around 10-15 percent at present - - the number is likely to inch up to 30 percent in the next two years.
Gadgil said one should not purchase silver as an investment as it was not the right option and mostly used for house-hold requirements, poojas etc in India, so one can purchase silver for those requirements.
Q: Where do you see gold prices head toward in the near-term?
A: The trend for gold prices looks bullish, the trajectory looks upwards, I am confident that over the next two-three years, the demand for gold will shoot up drastically. Therefore, the prices will hit the roof. Prices will reach $2,000/ ounce in US Dollar terms at least. In the near term too, gold prices will see an upside since, currently, gold seems to be the only stable investment option for the entire world.
As the economy opens up, stock markets shall again see a fall once Q1 results for companies start coming in. I see a strong liking towards bullion for investment purposes. Right from the lower strata to the Sec A, A+, mutual funds to FIIs, everyone will be attracted to the yellow metal all over again.
Also, Gold ETF’s have booked record profits for the last quarter, their best results ever in history, so I think both in the short and long term, gold will continue its upward trend. However, we are recommending customers to purchase gold with a long term view and possibly only in the physical format.
Q: How much is the estimated loss for the jewellery sector due to COVID-19 lockdown?
A: The domestic retail market for jewellery would be around two lakh crores. Out of that, this period of Gudi Padwa, Akshay Tritiya and Summer wedding season, from the end of March to the end of May, would roughly account for around 15-20 percent. The loss of revenue of the industry would be around 15,000 crore at least.
Q: Do you see the precious metal demand to go up once the lockdown period is over?
A: As I mentioned earlier, the demand for the precious metal will go up considerably over the next two-three after the lockdown, given that the yellow metal will be considered as the safest and most reliable investment vehicle. Currently, if an investor has invested up to 10 percent in gold in his/her entire portfolio, that same number is likely to go up to 30 percent.
Q: Does high gold prices deterring consumer to postpone or hold buying jewellery?
A: It is not the prices, but the outlook which helps customers decide the timing of the purchase. In India, along with pricing, factors like our culture, society, marriages as well as religion play an important role in the purchase of gold. Even globally today the outlook is bullish and the trend will continue over the next few years.
Q: What is the sector request to the government in terms of reducing custom duty on precious metal?
A: The jewellery sector has been stressed for almost two to two-and-a-half years and import duty reduction has been an agenda for us because with the higher prices of gold in dollar terms and the rupee depreciating against the dollar, prices here have gone up so we are definitely asking the Government of India to look into duty reduction.
Since oil prices have gone down considerably, there will be a sizeable reduction in the import bill of our country, so we are hoping that reduction of import duty will be a viable option for the Government of India.
Another thing we are asking the GOI is to ensure that there is enough capital for the industry. Most banks have put the Gems and Jewellery industry on the negative list, hence it is important to ask banks to relook at this entire situation and come up with solutions to help with extending credit for the sector. Lending for the sector must start in a bigger way.
Q: The gold-silver ratio is trading over 100 for a while, do you think it is opportune time to buy silver?
A: Silver usually mirrors the price of gold. However, a big chunk of demand for silver comes from the industrial side, whether it be the technology industry or the automobile sector. This demand will see a sharp fall in the days to come and, therefore, I believe the price of silver will not mirror that of gold as per the gold-silver ratio. I am not very bullish on silver as an investment option. Slow down in other sectors will have a big impact on the price of silver.
Q: What are the factors driving demand for the yellow metal?
A: Fear, uncertainty and speculation around the current economic situation have a big impact on driving the demand for gold. Gold has always known to be anti-inflationary, gold is also known to be a metal that retains its purchasing power parity during the crisis.
Gold is liquid and gold right now from the safety perspective seems to be the only option in front of people. History has proven that during any war, or any other crisis, gold has always proven to be the option where people have decided to park their investments in.
Q: Do you see the rally in gold continuing? What levels do you see by the end of 2020?
A: End of 2020, I see gold will be around $1,800/ounce, In rupee terms, gold should touch anywhere between Rs 50,000 to 55,000.
Q: Do you see central banks buying will act as support for gold from going down?
A: Central banks across countries now will buy gold for their investments. Currencies are unstable, markets are unstable. If you look at countries today, the USA is the largest holder of gold followed by China, Russia, Germany, even the EU and the IMF have huge gold holdings. In the days to come, you will see all these countries, including India, increasing their gold holdings.
Q: Should one sell gold and buy silver at current levels?
A: I believe people should not sell but purchase gold at regular intervals if they have the liquidity, I don’t think Silver is an investment option right now. In India silver is used for house-hold requirements, Poojas etc, so one can purchase silver for those requirements however I do not recommend investing in silver at this point.
Q: What is a good entry point?
A: Gold has been trading around $1,650 Levels. In India, the Rs 41,000 mark and $1,600 mark in the USA would be a good entry point. I would recommend not buying gold in one go but look at it in a SIP format, i.e. buying gold at regular intervals to be able to average out the pricing. Gold prices will see a lot of surges so I think one should spread the purchases in 4 to 8 instalments and avail benefit of average pricing.
Q: How is the consumption demand expected to react to this price hike?
A: the consumption demand will be two-pronged. One on the jewellery side and the other on the investment side. Jewellery demand, looking at it from the Indian perspective, the cultural and societal aspects will ensure demand for jewellery continues. Weddings in India have been postponed, so the industry will get its opportunity to sell jewellery this year as well.
In the last couple of years, we have seen the demand for jewellery go down, which I believe has bottomed out and is expected to rise. On the investment side, the demand for jewellery will see a big surge this year.
Q: Are people selling their existing gold and booking profit?
A: People with a long term vision on gold are not selling. In fact, they believe that it is the right time to invest further in gold. Hence, we are not seeing any selling pressure on the gold front right now.
People who are looking to sell gold are not looking to sell to book profits but actually to ensure that they are able to pay for certain expenditures or losses that need to be paid for in this time of uncertainty.
Q: How much percentage gold constitute of retail investor holding?
A: Currently 10-15 percent is the constitution of gold in an average Indian retail investor’s holding. That number is bound to reach levels of 30 percent over the next two years. Every year, India consumes nearly 800- 900 tonnes of gold and out of that, 350 tonnes are consumed on the investment side. Therefore, 350 tonnes can definitely reach around 500 tonnes.
Q: The mandatory hallmarking of gold jewellery coming into effect from January 15, 2020 will instil confidence in the retail buyer?
A: Mandatory hallmarking is a fantastic initiative for consumers. Giving consumers the confidence to know that their money is getting its true value is always important. Consumers are assured that what they are buying is certified and is coming from the right source. The industry has supported this move too while being in touch with GOI to help with the ongoing implementation of the same. As an initiative, the industry welcomes it and fully supports it.