Gold slides from all-time high level: What investors should do now?

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Updated: Nov 27, 2020 4:40 PM

As a luxury good, as an investment, a reserve asset, as a technology component – gold has various use and benefits from diverse sources of demand.

gold, gold investment, is it the right time to invest in gold, bullish on bullion, physical gold, gold jewellery, gold ETF, SIP, mutual funds, MFAfter a spectacular rally this year, the precious metal has come down from the all-time high level of over Rs 54,000 to near Rs 50,000 level.

As a luxury good, as an investment, a reserve asset, as a technology component – gold has various use and benefits from diverse sources of demand. After a spectacular rally this year, the precious metal has come down from the all-time high level of over Rs 54,000 to near Rs 50,000 level.

So, should the investors feel bullish on bullion?

“Bullion is a bulk quantity of precious metals, primarily gold, which is measured by weight and usually cast as bars or stored in the form of ornaments and jewellery. India is the largest market for gold jewellery in the world. There are many reasons one needs to purchase gold such as for exchanging gifts, personal use, weddings and as a future investment. It is a highly coveted asset throughout the country and has significant emotional and social value attached to it,” said S Ravi, Former Chairman of Bombay Stock Exchange (BSE), and Managing Partner at Ravi Rajan & Co.

Along with gold jewellery, investing in gold in any form would diversify the portfolio of an investor as the precious metal becomes a savior when markets and economy struggle.

“Investing money in gold as an asset is worth it, as gold is safe hedge against inflation. In the long term, the returns on investment in gold are in line with the rate of inflation. Bullions in different weights can be purchased from financial institutions, bullion retailers or even jewellers for their price in gold weight. This purchase includes a dealer’s premium and gold rates may be spot prices that are lower than the market price,” said Ravi.

As the investment in physical gold comes with some storage cost due to security issues, investors are increasingly preferring other forms of investing in gold due to ease of investing and holding.

“Gold bullion can even be bought online in India through an SIP (systematic investment plan) as it is considered a more affordable strategy. One can opt to pay a small amount on a monthly basis over a chosen period to accumulate its worth in gold. The gold purchased with each payment over a time, provides one a staggered pricing hence averaging the purchase cost. One can redeem the gold once the payment terms are complete,” said Ravi.

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“Another alternative are gold ETF’s, or Exchange Traded Funds. These are commodity-based Mutual Funds that invests in assets like gold. These exchange-traded funds perform like individual stocks and are traded similarly on the stock exchange. They are available, both in dematerialised and in paper form. An investor invests in stocks instead of the actual metal, and once it is traded, they are credited with the unit’s equivalent in cash instead of actual gold,” he added.

Not only this year, the yellow metal had also seen a surge in the last few years also, producing high returns for the investors.

“Gold has been shining bright in the past three months. Due to the rally in gold prices, gold funds and gold ETFs have been receiving large inflows in the recent past. Gold has no doubt been one of the best assets classes with a return of 24 per cent annualised which renders financial assets pale in comparison. It has risen 50 per cent in the last one year to hover around a historic high of Rs 49,000 level in the domestic market. Even over a slightly longer term, gold has delivered 11.7 per cent annualised CAGR return over the last 12 years, 9.8 per cent for the last 10 years, 12.3 per cent for the last 5 years and 16.7 per cent for the last 3 years,” said Ravi.

So, what would be the right avenue to invest in gold?

“According to brokerages and mutual funds, lately retail investors have been keen on taking derivative positions and investing in stocks and ETFs. Investors have been opening trading accounts in large numbers during the lockdown. Many of these investors are high net worth individuals. Due to lockdown and issues in physical deliveries, many commodity investors have also shifted to gold ETFs. This shows the changing sentiment of investors towards the yellow metal and the shift in investment patterns that the Covid19 outbreak has brought in,” said Ravi.

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