Gold prices: From the beginning of the year, the yellow metal has returned over 21 per cent in the domestic market, better than equities and fixed income instruments.
Gold has suddenly picked up momentum in recent days to climb to above Rs 30000 per 10 grams to reach two-year highs in the domestic market on the back of huge buying for Akshaya Tritiya and the wedding season.
In the international market, gold has touched a 15-month high, racing above the $1,300 an ounce due to uncertainties in equity markets and weakness in the dollar.
From the beginning of the year, the yellow metal has returned over 21 per cent in the domestic market, better than equities and fixed income instruments. In the recent run up, gold has climbed nearly 5 per cent in that last 10 trading sessions from Rs 28900/10 gms to close at Rs 30,209 on May 4.
As you step out to buy gold as is customary during Akshaya Tritiya on May 9 or for wedding purposes, the question in your mind would be whether this would be a good time to buy? Will the precious metal give further returns from these levels?
Commodity experts themselves seem to be divided on the prospects of gold from here on. While Gnanasekar Thiagarajan, Director, Commtrendz Research feels that the yellow metal still has steam left in it, Biren Vakil, CEO Paradigm Commodity Advisors advises caution holding the view that there could be chances of drastic correction that could erode your wealth.
“The trend looks positive. Investors come in when markets see returns from an asset class. The momentum is there,” Thiagarajan said.
He said that buying could take gold to Rs 32,000-32,500 in the short term, while it has potential to reach Rs 35,000 in a year’s time. “In the short term there might be some volatility by the long term story is good. Gold is safe haven commodity in uncertain times,” Thiagarajan said.
Investment advisor, Anil Rego, Founder and CEO, Right Horizons, agrees with Thiagarajan. “We believe that it would be wise to retain gold investments at this time, considering the low interest rates globally and continued monetary easing will have a negative impact on the real value of currency. Those who do not have gold in their portfolio, should go for staggered investment, such as in a SIP. The expected good monsoons this year would put money into the hands of rural consumers, for whom gold is a preferred investment. If this demand occurs, gold prices could harden further. Gold could be 5-7 per cent of the portfolio value,” Rego said.
Rego suggests investments through ETFs or Gold Bonds. “The cheapest and safest ways to invest in gold would be through the Government’s Sovereign Gold Bond Scheme or through ETFs. These reduce the costs of buying and loss on selling physical gold, and also avoid the risk of holding the metal in physical form,” Rego said.
Commtrendz Vakil, however, is bearish on gold. “Global economy is in a slow recovery mode. Gold is generally a hedge against uncertainty. Hence, there is no appealing argument to buy gold. There are chances of drastic correction of Rs 2000-3000 from here on. Every time gold has touched Rs 30,000 in the past it has retraced to Rs 25000 levels,” Vakil said.
He felt the best case from here on is Rs 32,000. The maximum annualised return from here is 10-15 per cent. While the upside is Rs 2,000, the downside is Rs 3,000. I would suggest wait-and-watch to investors who should buy once the metal goes to Rs 26,000-27,000 levels. “Investors should not adopt a herd mentality by rushing to buy when prices are moving up,” Vakil said.