Gold prices at 5-year high: Is it right time to invest in gold or gold related instruments?

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Updated: June 21, 2019 7:36:13 PM

In India, with the current price of around Rs 31,248 per 10 gram, gold has crossed the previous all time high peak of around Rs 30,865 per 10 gram achieved in 2012.

gold, gold prices, pure gold, gold jewellery, Gold ETF, Sovereign Gold Bond, SGB, MCX Gold, is it right time to invest in gold, trade war, US, China, Iran, central banks, Motilal Oswal reportMotilal Oswal report predicts that gold prices are expected to remain well supported.

Gold is glittering brightest in five years, thanks to trade war between the US and China as well as tension with Iran. As the gold was not performing well in last 5-6 years, in international market, the current price of gold at around $1,345/oz is nowhere near the 2011 all time high of $1,889.70, but in India, with the current price of around Rs 31,248 per 10 gram, it has crossed the previous all time high peak of around Rs 30,865 per 10 gram achieved in 2012.

The main reason of the global tension is that China – the world’s top gold producer and consumer – is facing the prospect of slowing domestic economy as the Trump administration raised tariffs on Chinese imports. Apart from China, tension between the US and Iran is also adding to the uncertainty.

Apart from the global tension, another significant factor that created the demand pull is purchasing spree by central banks of various countries. The latest Q1 report by WGC showed that some central banks in Asia including China, India and Kazakhstan and from Europe such as Russia, Poland and Hungary have begun accumulating Gold. China – the world’s largest foreign exchange reserve holder and the world’s second largest economy – has recently joined the global central bank gold rush by increasing its gold reserves. In fact, central banks are among the world’s largest investors in gold, with total holdings of more than 30,000 tonnes as on February, 2019 according to WGC.

According to a Motilal Oswal report, it appears, safety and liquidity remains priority for central banks amidst the qualms hovering in the market. Central banks had to buy gold because of its vital role in global financial system, although this has increased due to the rising concern of the dollar.

The report – named Central Bank’s run for gold! – also predicts that gold is getting another boost from change in tone from major central banks who are changing their stance from hawkish to neutral or dovish, as the banking regulators of all major countries are on back foot and concerned about global economic slowdown and its impact on economy.

Motilal Oswal also predicts that gold prices are expected to remain well supported as countries look in no mood to stop the buying as uncertain weather continues to hover several economies.

“Overall with the central banks love for gold on the rise, geopolitical uncertainty increasing and clouding of global recessionary environment, we believe that gold prices are likely to rally over the coming quarters,” says the report.

So, the question is – is it right time to invest in gold? “For long term investments, every dip is a good opportunity,” says Kishore Narne, Head of Commodity & Currency, Motilal Oswal Financial Services, citing the above reasons as well as low policy rates in leading economies. “Wait for small dips to invest,” he stressed.

When asked about investing in gold related instruments, as the government has decided to issue Sovereign Gold Bonds (SGB) on monthly basis for next four months, Narne said, “Whether to invest in pure gold or gold jewellery, or in instruments like SGB, Gold ETFs, MCX Gold etc, is a personal choice of an investor.”

“The rally was due, as gold didn’t perform well in last five years and expected to sustain due to global factors. However, for short-term investment of around two years, investors need to be more careful, as the metal is rallying high,” he further said.

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