Look to accumulate gold on monthly basis: Scotia Mocatta

Managing director of Scotia Mocatta Sunil Kashyap says the way to play gold is on an accumulation basis. “The best way to go ahead and invest in gold is to accumulate on a monthly basis or every religious occasion rather than wait for discreet levels to get into gold,” he said in an exclusive interview to CNBC-TV18.

Gold has always been considered a safe haven, and since it’s inversely related to equities, Kashyap says it is one of the most viable options for consumers trying to get a diversified basket of investments. Also read: Are you buying coins, bars or gold ETFs? He goes on to say that gold could move to USD 1900 per ounce by the end of this year and that the yellow metal has strong support around USD 1600 per ounce. “In rupee terms, Rs 26,000-27,000 in rupee basis is a good support for gold,” he added. Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video. Q: It hasn’t quite been as scorching a year for gold as the last few have. Given the kind of consolidation we have seen, is this the level you would recommend to start buying into gold now? A: I think the way to play gold has to be on an accumulation basis. So you have to keep buying at periodic times rather than wait for particular levels. I think the Indian habits of buying at occasions like Akshaya Tritiya or Diwali and accumulating gold over many years has been something which has borne fruits for Indian investors and that’s probably the best way to go ahead and invest in gold, i.e. to accumulate on a monthly basis or every religious occasion rather than wait for discreet levels to get into gold. Q: Originally you did see gold move in an opposite direction to risk assets, but of late there is positive correlation between the two. Do you expect that to change around? A: I think from an Indian user’s point of view you have to look at the way the gold prices are moving in rupees. You are right that there is a little bit more correlation than in the past, but still gold is one of those few assets which tends to have a less correlation compared to equities or bonds. Therefore, it still provides one of the most viable options for consumers to trying to get a diversified basket of investments. Q: Do you expect the recent news flow from Europe to lead to any kind of risk aversion in the global system, and in that case gold to find support around the current kind of levels? A: Whenever there is a risk-off kind of a trade, you do find some selloff because people who have bought gold for ETFs or in other markets tend to sell off so sometimes there is bit of a correction. But often we find that gold soon finds a support and in fact in the medium-term people start buying gold again, so it tends to bounce back up. So we believe that even though if there is some selloff there should be good support at around USD 1,600. We have seen that support being kept for several times over last couple of years. So USD 1,600 in dollar terms is a good support and I would say probably around Rs 26,000-27,000 in rupee basis is a good support for gold. Q: The government did specifically target gold imports in the last Budget in terms of higher taxes. Do you expect that to crimp demand at all? A: We definitely have seen that after the Budget imports have declined. I must say that the thesis of the government that somehow by controlling imports they could make the rupee stronger has been disproven somewhat. In the last six weeks or so, imports have basically come to a standstill but the rupee has depreciated from Rs 50 per dollar to Rs 52. So that particular thesis maybe questionable but there is no doubt that since the Budget the imports into India have reduced and most market participants expect this years imports to be lower than last year by between 10-20%. Q: So if you had to stick your neck out on Akshaya Tritiya day and give us a range or a target for gold prices what is it you think it could get to? A: I think in dollar terms you may see USD 1,900 probably at the end of the year, especially if you have got talk about easier monetary policy, maybe a QE3. So at that time gold prices may go up higher. For the Indian investor, gold is currently at Rs 28,500 which is historically a very high level. Even though the dollar prices have come lower with the rupee weakening, the rupee prices of gold are higher and I think therefore gold in rupee terms will continue to be sustained at these kinds of levels. We don’t really expect too much of a price increase in rupee terms, but it should hold the current levels and certainly will be good store of value. Q: Today is all about gold, but any thoughts on silver and how to play it for next year? A: I think silver is driven by two factors. One is of course its a precious metal and its driven a lot by gold prices, but it is also an industrial metal and so it tends to suffer every time there are indications of a slowdown in the economy or there are indications that industrial production may come down and so that’s why you see the volatility of silver prices. India traditionally and Indian investor has bought silver either in the form of utensils or in the form of other jewelry and I think some amount of exposure between 2-5% of a portfolio in silver is not a bad thing. But more than that, silver could be a bit risky because it’s driven by other factors compared to gold.