The precious metals have emerged as one of the best performing asset class in 2011 outdoing the average 5% return given by domestic debt funds.
Growing uncertainties in global markets as well as depreciating dollar have led to phenomenal returns for gold and silver, which appreciated 12 and 25%, respectively as against an 11% decline for Sensex. According to experts, the investors have in general reduced their risk exposure which in turn has led to appreciation of prices of safe haven assets.
?Given the uncertainties in the global markets, investors have aligned their portfolios towards some of the safer asset avenues. Consequently besides gold, defensive sectors from equity markets have performed well, the best example being FMCG funds which have given the second highest returns after gold funds,? said Dhirendra Kumar of Valueresearchonline. He also pointed out investor appetite towards less risky assets has resulted into a rising interest in bank deposits and FMP debt funds.
Prices of precious metals as well as other industrial commodities (including crude oil) are linked to its international dollar denominated prices. Consequently, a year-to-date 6% depreciation in dollar has given a boost to already rising commodity prices.
Additionally, the ongoing debt crisis in Europe and US has led to investors becoming risk-averse which in turn has boosted prices of safe haven assets especially precious metals, which is considered as an inflation hedge. Both gold and silver have reached their all time highs of $1619 and $ 48 per troy ounce in 2011.
Also rising investing interest in precious metals has resulted into an increase in the trading activities on the domestic commodity exchanges.
The average monthly turnover on the Multi commodity Exchange (MCX) has seen a more than 50% jump from R7.5 lakh crore in July 2010 to R11.8 lakh crore in July so far. On the other hand, equity volumes are way away from their 2007-08 highs and significantly below the levels seen 2009.