Investing in gold is always considered as insurance against volatility of returns, so anytime is a good time to invest. Traditionally asset allocation models suggest anywhere between 5-15 percent of the portfolio should be invested in gold which should be adjusted and enhanced at such times as additional tactical investment, Kishore Narne, Head - Commodity & Currency at Motilal Oswal Financial Services said in an interview to Moneycontrol's Sunil Shankar Matkar.
Q) Gold finally hit fresh high rising in double-digits on a year-to-date basis. Do you think liquidity is the only reason behind the rally in yellow metal or is it pointing towards a much more serious risk which is yet to be seen?
A) Liquidity is certainly one of the biggest factor behind this rally but not the only factor. A weak dollar, brewing trade war between China and US, slump in global growth amid COVID-19, bleeding fiscal balance sheets and lack of investor confidence in other asset classes along with movement of a huge amount of money from negative-yielding bonds chasing returns have led to this phenomenal rally in gold.
Q) Is it the right time to invest in gold? What are the options for investment in the yellow metal? Also, what should be the proportion of gold in one's portfolio?
A) Investing in gold is always considered as insurance against volatility of returns, so anytime is a good time to invest. Traditionally asset allocation models suggest anywhere between 5-15 percent of the portfolio should be invested in gold which should be adjusted and enhanced at such times as additional tactical investment.
In our view, right now, 30 percent weightage makes sense. There are many ways of getting that exposure; from buying a coin/bar in physical form or as digital gold in electronic form or one may opt for sovereign gold bonds if one doesn't bother to lock-in the money for 7-8 years. One can also look at Gold ETFs or buying futures and options on MCX. Which one suits better always depends on the time frame one is looking for and frequency of trading.
Q) Silver also traded in line with yellow metal, but few experts feel silver may overtake gold. Do you agree?
A) Silver had been underperforming gold since the last two years until recently, when it moved swiftly to cover up the lost ground. Silver has lost its identity as a precious metal and has been performing as an industrial metal which reflects the macroeconomic growth around the world, which makes it a favourite for traders rather than investors. Silver may perform better than gold over the short-term but it comes with enhanced volatility, so investors should keep that in mind when they buy silver.
Q) What is gold-silver ratio and what does it generally indicate? Why should one know about it?
A) The Gold-Silver ratio is just a mathematical calculation of how many units of silver can be bought with one unit of gold. Traditionally this ratio used to be 60-70 units of silver per one unit of gold, recently as gold started its bull trend and left behind the silver the ratio jumped to 125 showing that silver is highly undervalued and in addition to that the concerns over supply disruption in South America and Mexico have pushed up silver bringing back the ratio close to 70.
Q) Crude oil prices seem to be gradually moving upwards with intermittent consolidation. Do you think Brent crude futures formed the base around $40 a barrel now and are inching towards $50 a barrel?
A) Crude prices have been consolidating around $42 levels and with an additional supply of 1.5mbpd coming out in August and rising COVID-19 cases keep a tab on any rally. But at the same time increased liquidity in the system is pushing up the prices which makes it range-bound till we see any fresh triggers.
Q) Base metals also witnessed buying interest with the re-opening of economic activities globally. What are your thoughts and what should be the strategy?
A) Base metals have seen a rally on the supply-side concerns with rising COVID cases in countries like Chile and Peru which are large suppliers in concentrate market and at the same time the reopened China pushed up demand for the metals. We expect the strength to continue and we see 6-7 percent rally in metals.Disclaimer: The views and investment tips expressed by investment expert 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.