The recent fall in gold prices is likely to spur buying during the festive season. The price of the yellow metal has fallen more than 5% in the last one month and jewellers are also offering discounts on making charge of ornaments. If prices remain at the current range, demand will pick up during Dhanteras and Diwali later this month.
Gold prices dropped to Rs 29,829 per 10 gm on October 19 after rising to Rs 31,466 per 10 gm on September 7. Strengthening of dollar and rise in equities have impacted gold prices. Demand for gold usually picks up in the three months to December because of the wedding season as well as festivals such as Diwali and Dussehra, when buying the precious metal is considered to be auspicious.
In the first six months of this year, gold demand in the country fell around 30% because of the two successive years of drought and the 45-day strike by jewellers after the Union Budget.
Gold acts as a hedge in an individual’s investment portfolio as the metal has an inverse correlation with the equity market. So, in such a scenario, analysts say it makes sense to invest in gold this Dhanteras. One can invest in the metal by buying jewellery, coin or bar or take the paper route by investing in gold exchange-traded funds (ETFs). On the occasion of Dhanteras, jewellers come out with special schemes and discounts for investors. One must note that from January this year the government has made submission of PAN mandatory for jewellery purchase worth over R2 lakh.
Analysts say every investor’s portfolio must have 10-15% allocation to gold, which can also act as a hedge against inflation and balance the fall in returns from equity or bonds. Gold as an asset class has a different kind of importance for Indian investors due to its long-term endurance value, proven hedge against inflation and as a hedge against currency risk. Apart from physical gold, one can invest in the yellow metal through the mutual fund route via ETFs or gold systematic investment plans.
Gold SIPs enable an investor to invest in the yellow metal in the paper form and save the investor from the hassles of storage. One does not have to open a demat account to invest in gold SIPs, unlike gold exchange traded funds, and can save on the charges like annual maintenance of the demat account, delivery and brokerage and transaction charges.
Analysts say people are increasingly investing in gold through the ETF mode. Buying gold through ETFs is purely investment driven and is not meant for consumption. It is a smart choice among investment options because of the low expenses, higher tax efficiency and price transparency.
Analysts also suggest investors should purchase the metal in a staggered manner rather than buying all the desired purchases at one go. Investment in gold should be planned based on the expected returns, associated risks, benefits and asset allocation. Investments are financial decisions, which should be based on one’s asset allocation rather than emotions. A long-term horizon will help mitigate the risk by reducing volatility, and it is ideal to make investments on a regular basis rather than once.