From a portfolio perspective, and uncertainties linked to other riskier asset classes, the proportion can be to the tune of 10-15 percent considering the current prices being at life highs.
From a short-term perspective, it's not a good time to buy and hold gold as prices are at all-time highs and we have witnessed a rally of close to 44 percent year-to-date. Investors should wait to enter near Rs 50,000 levels for a target Rs 57,000 to Rs 58,000, Sunilkumar Katke, Head - Commodity and Currency at Axis Securities 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) The gold rally can be seen in two different ways, one from the perspective of safeguarding the capital and second from the perspective of earning a decent return on investment (ROI). If we see, there are very few asset classes that are in competition with gold in the times of uncertainty, where investors will be willing to keep their hands out of riskier asset classes considering the uncertain future as a result of COVID-19.
Even though weakening US dollar on account of added stimulus measures by the government is flooding the market with easy money, the inflation is also playing its part in supporting gold prices in its rally. Almost half of the year has gone by in disruption where most of the businesses and industries have taken massive blows on their balance sheets and their results, in spite of the government aid will post serious risk concerns that are yet to be seen as we move ahead. From a long-term perspective, the rally is not over yet. A good opportunity to buy will be a 10 percent correction in prices from here.
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) From a short-term perspective, it's not a good time to buy and hold gold as prices are at all-time highs and we have witnessed a rally of close to 44 percent year-to-date. Investors should wait to enter near Rs 50,000 levels for a target Rs 57,000 to Rs 58,000. Electronic purchase and sale of gold have gained popularity where the investors can buy gold through ETF, futures, gold Bonds etc are the easier and less costly modes one can use. From a portfolio perspective, and uncertainties linked to other riskier asset classes, the proportion can be to the tune of 10-15 percent considering the current prices being at life highs.
Q) Silver also traded in line with yellow metal, but few experts feel silver may overtake gold. Do you agree?
A) Silver has already overtaken gold in terms of ROI as the YTD ROI is twice the percent of gold's ROI. Silver is rallying at a quicker pace as it is receiving support from both precious metal and industrial metal perspective. Silver's 60 percent consumption comes from industries and about 40 percent from investment and jeweller, this time around the rally in gold was early and silver caught up later as a safe-haven. Stimulus measures from most of the major economies to revive the economy by promoting manufacturing also helped the prices rally from an industrial demand perspective. Disrupted mining activities also raised concerns over supply as we move ahead. We expect the prices to stay around the $28-$31 mark at Comex in the near term that converts to Rs 75,000 to Rs 85,000 per kg in the Indian market in the coming months.
Q) What is gold-silver ratio and what does it generally indicate? Why should one know about it?
A) Gold-silver ratio is nothing but the value of gold denominated by the value of silver for the same quantity. For years, there has been a ratio prevailing in the market as they make a big part of the precious metal segment. Historically, it has acted as an indicator and has proven to be a good parameter in predicting the prices and hence it is of importance.
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) The crude oil prices have been rangebound from the last one month now around $42-$45 for Brent crude. The demand concerns are keeping the prices from a rally even after OPEC+ nations output cut to control the price fall. The additional stimulus measures by the US has created positivity in the market and supported the prices from a possible fall. We expect the prices to stay rangebound with a positive bias from levels at NYMEX and at MCX at around Rs 3,000 - 3,300 per barrel mark till the time some positivity is seen from COVID vaccine perspective to drive the demand forward. Positionally, it's not a bad level to buy and hold for a target of $50.
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) I am not very bullish at current levels as all the fundamentals like mining disruptions, additional stimulus measures, improving Chinese demand and opening up of economic activities have been discounted in current prices. We may soon see some profit-booking in base metal prices as the fundamentals don't support prices above current levels. Some speculative trades may drive the prices up and down in a limited range from here. I suggest a sell in Copper around Rs 520 targeting Rs 480 with a stop loss at Rs 535 in a month's time at MCX.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.