For long-term investment, buy gold at dips and build your desired portfolio allocation to the precious metal
THE Indian gold industry is considered to be one of the largest industries in the world. The industry has witnessed a lot of ebb and flows last year, right from excise duty rates to introduction of PAN card for purchase of gold and the demonetisation drive. All these factors, along with introduction of goods and services tax (GST) and the election of Donald Trump as US president will together frame the outlook for gold in 2017.
If you are looking at investing in gold in the coming months, it is best if you invest with your accountable money. The increased scrutiny of transactions by jewellers sparked rumours that the government will now go after gold investments.
Legal experts say there is little chance that the government will impose a limit on the quantity of gold holdings, though there could be other curbs. I don’t think the government will put a limit on the ownership of gold. However, it could lower the threshold of the PAN requirement or even make it mandatory for individuals to mention their PAN when they sell gold.
With GST coming into the picture by the second quarter of 2017, it will benefit organised jewellery brands and curb smuggling and control sales in parallel markets. Hopefully, gold prices will stabilise in coming months after the declaration of GST, which is a positive reform that the industry has been waiting for.
US President-elect Donald Trump
Additionally, US President-elect Donald Trump may implement some of his election promises. Since the economic policies of the new US government are expected to be radically different, there will be some uncertainty in coming months. Gold usually does better in uncertain times. Confusion about the possible economic policies of the new president is likely to be good for gold. Once Trump takes charge of office around mid-January, there will be positivity and markets will pick up.
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The government’s fight against black money and corruption began with the income declaration scheme. The denomination of R500 and R1000 notes is a sequel to same and we support this relentless fight against corruption. Demonetisation is definitely going to leave its effect in the initial months of the coming year. We may not achieve a good sales figure in comparison to previous years, but the aspiration that people have for the yellow metal, makes jewellery buying an important part of the season. Besides, it is a good time to invest in gold as the rates are low and it is expected to be the same for the next quarter.
All these factors are having an adverse impact across the sector. However, high end jewellery brands are largely a part of an organised market and transactions are done on the basis of an invoice. Earlier, a large portion of the population bought gold jewellery for investment and also as a status symbol.
Gold purchases, of late, has been more need-based. In 2017, consumers’ preference would be more for lightweight jewellery with emphasis on innovative jewellery designs. Customers today prefer buying jewellery that they can actually wear rather than keeping it in the lockers. Everyone is looking to buy jewellery that can be worn, which largely includes earrings, chain and pendants, rings, nose rings, etc.
The author of the article is Saurabh Gadgil, CMD, PNG Jewellers & director, IBJA