Investors have reason to cheer as Katke feels prices may correct by Rs 700-1,000/10 gm by December-end.
It has been a year for gold bugs, with the yellow metal surging over 19 percent year-to-date, as against almost 12 percent returns for the bellwether Sensex.
It touched a high of Rs 40,000/10 gram by October-end but has since retreated to the Rs 38,000 zones. In dollar terms, it hit a high of $1,565 per troy ounce in August-end.
So, what does 2020 have in store for gold?
Sunilkumar Katke, Head - Commodities & Currency, Axis Securities, sees one of the world’s oldest currency forms touching around Rs 39,500 per 10 gm by March 2020.
But, what about investors who are feeling left out by the huge run or were waiting on the sidelines for a price correction to enter?
Investors have reasons to cheer as Katke feels prices may correct by Rs 700-1,000/10 gm by December-end. “In the short term, precious metals are likely to take a cue from the US-China trade deal. The trade war is hurting both countries, especially China, with export data emerging out of there shrinking for the fourth month in a row.”
In dollar terms, he sees gold heading toward $1,430-1,440/troy oz, with $1,480 acting as strong resistance.
For retail investors, gold exchange traded funds (ETFs) or sovereign gold bonds (SGBs) are among the simplest options available to buy gold digitally without worrying about the quality, premium charged by jewellers/banks, risk of being stolen or hassle of resale in physical markets.
He suggests investors create a systematic investment plan and accumulate Gold ETF units/bonds. “Even though both gold ETFs and sovereign bonds are good alternatives to physical gold, the former comes with more flexibility as there is no lock-in period when compared to the five-year timeframe in SGBs and is more liquidity,” he explained.
Even in the case of those looking at capital gains, gold ETFs/SGBs score higher than buying physical gold as they are more cost effective and safe.
Sophisticated investors can opt for the derivatives route to multiply their returns via calculated margin. Let’s elaborate this with an example. Investor A buys a 10-gram gold ETF valued at Rs 38,000 by investing the full amount and sells the same at Rs 39,000 after a month. For investor A, the return on investment will be 2.63 percent. Investor B buys 10 gram of gold on a derivative platform by investing Rs 19,000 (at 50 percent margin) and sells the same at Rs 39,000 after a month. For investor B, the RoI will be 5.26 percent. However, the latter option also carries higher risk, as this could also result in double the loss in case gold prices turn lower.
Those investors seeking higher returns by taking on additional risks could look to invest in gold mining funds. It is noteworthy to remember that the performance of gold companies that does not have straight correlation with the gold price.
But, given the huge rally, do these funds merit investor’s attention at current levels? Katke feels one can still be a cautious buyer as the price trend in gold continues to remain bullish. “Investors can expect gold prices to touch Rs 42,000 in a year, based on current fundamentals and ever increasing demand from global central banks and ETFs,” he said.Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.