Nikhil WalavalkarMoneycontrol.com
Catch an investment expert on Dalal Street and there is a high probability that he will give a bearish view on gold prices. Despite weak economic sentiment worldwide experts have valid reasons for going slow on gold. “Rapid dollar appreciation against other currencies, possible rise in US treasury interest rates and absence of inflation indicate soft gold prices in near term,” says Devendra Nevgi, CEO, ZyFin Advisors. However, if Akshay Tritiya is a good enough reason to buy gold for you, here are five things you should know about:
You are going against the experts
The numbers make it clear that gold is not the preferred investment this season. Gold prices are down by 8% over last one year. If you have been holding gold for last three years, you have already lost 3.4%. No wonder, gold exchange traded funds (ETF) have seen net outflow of Rs 1475 crore in financial year ended March 2015. “Given strong US dollar, there is no meaningful upside in gold in next two-three quarters,” says Hitesh Jain, senior commodity analyst, IIFL. No wonder if you are going to stick to your tradition of buying gold on Akshay Tritiya, you are going against expert opinion.
Gold is a must in your portfolio
Despite a bearish scenario, one cannot do away with gold investments all-together. “Sovereign crisis worldwide, fall of Greece or a sharp rise in crude oil prices cannot be ruled out completely,” says Devendra Nevgi. In an extreme geo-political crisis the risk appetite of investors worldwide goes down and lead to fall in asset prices other than gold. “Gold is a must in every portfolio to ensure portfolio stability. Keep at least 5% to 10% in gold,” says Pankaj Mathpal, CEO, Optima Money Managers. In the long term gold maintains the fine balance of risk-return for the portfolio. Rajiv Shastri, CEO of Peerless Mutual Fund recently explained how gold reduces risks and enhances portfolio returns.
Take fund route to buy yellow metal
Though it makes sense to keep some money in gold and if you are well below those limits, don’t rush to your nearest jeweler’s shop tomorrow. “Given the advantages over physical gold, you should be investing in gold through exchange traded funds or gold saving funds,” says Pankaj Mathpal. You can buy units of gold ETF on the stock exchanges. There is an extended trading session between 4:30 pm to 7 pm on April 21, if you are keen to buy gold only in the evening. If you do not have a demat account, do not lose heart. You can invest in gold saving funds that in turn invest in gold ETF, using paper-pen route. Owning gold through mutual funds have its own advantages.
Don’t fall for 'schemes'
The occasion of Akshay Tritiya means a boom in schemes offered by jewelers on jewellery and bullion gold. Physical gold comes with issues such as high storage costs and illiquidity issues. Also one should buy gold jewellery when he wants to consume gold. Investment motive necessitates selling of gold with least impact costs, which is not possible when one buys jewellery due to wear-tear of gold ornaments and emotional attachment of buyer.
Be prepared to ride volatility
Gold prices have been in a narrow range for some time now and expected to remain low in near term. However going forward gold prices may not remain calm in medium term. Gold prices in rupee terms are dependent on gold prices in dollar terms and USD:INR exchange rate. If the rupee depreciates against greenback, while gold price in dollar terms remaining constant, the rupee prices of gold are expected to rally. Even if gold remains stable in international market, and the rupee strengthens against dollar, gold is expected to lose its value in rupee terms.
Gold prices that Indian buyers pay also factor in customs duty on gold. If customs duty on gold is cut by government, gold prices may fall further. One must know that there are several factors that affect the gold prices and changes in these factors can lead to changes in prices of gold.
This Akshay Tritiya, be a wise buyer of gold. Instead of being bearish or bullish on gold, it makes sense to buy a portfolio insurance by purchasing some gold in your demat account.
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