Revised Investing In Gold

Akshaya” means the never diminishing in Sanskrit – the day which is believed to bring good luck, success and prosperity to one’s life. It is considered auspicious day for initiating new ventures and marriages.

There are lot of mythological stories in Hindu and Jain religion to support the significance of Akshay Tritya as well as lot of Indian states also celebrate this day as per their traditions and culture. Starting a new activity or buying valuables on Akshaya Tritiya is considered to bring luck, success and prosperity. Many buy new gold or gold jewelry on Akshaya Tritiya. Banks, Financial institutions and Jewellers make the make best use of the day by offering lucrative schemes and freebies on purchase of gold bonds, certificates, jewelry or coins.

Gold as experts advise should form 10-15% of asset allocation. As a matter of fact and when gone by the records, Equities and Real Estate sector definitely edges out its peers in terms of returns; but also noteworthy is the fact that Gold with equity reduces risks and ensures safe returns.

Post US Presidential elections and in the initial phase of Trump Era Yellow metal has witnessed a volatile session and surged higher due to ongoing geopolitical turbulences, stronger than expected physical demand in China and shortfall in supply from mines. The probable reason to offset those gains are prospective global recovery, Increase in U.S. interest rates and dent in physical demand.

Gold for me is unlikely to keep the momentum going and genuine investors can wait as gold just might stabilize and decline in days to come.

INTERNATIONAL FACTORS:

·         Gold has been darling in times of inflationary pressure. As of now world is struggling to come out of recessionary forces and Unemployment is a common phenomenon across the globe. If in the event, if employment rate gets a real trigger, price of labor can push inflation northwards, but it is unlikely to happen in near future as growth at global level is yet to pick impetus.

·         Demand from largest consumers of Gold India and China is on decline especially amongst millennials. Indian Government has been stubborn on its import policies  and they been successful in dodging gold demand by alternate means – possibility of gold rush in India seems to be dim.

·         Since world as a whole off late has been on a sort of recessionary mode backed up with uncertainties prevailing in the global market, most of the central banks had already buffered enough gold in the past and they are akin to focus on domestic growth and stability. Demand of gold by central banks across world is not going to witness a sea-change on an immediate basis.

·         US, Europe, Japan and China led a series of stimulus packages and emerging countries have followed a suit. This push is gradually pushing global equity market and investments in Gold seems to be dull.

·         France was running through political uncertainties over a period of time which has now receded after presidential candidate Emmanuel Macron was front runner after initial round of voting.

·         On a gradual basis, it has been witnessed the risk appetite of investors is also on increase, which can be transpired from global stock market rallies over a period of time.

·         US markets are positively reacting to corporate results. Also there are positive vibes in market led by buzz over US President in favor of proposing tax cuts for corporates as well offering multinational business a vertical tax break on overseas profits brought into US. This will dampen gold buying spirits.

·         Gold mine supply, on the other hand, is continuing to advance, driven by lower costs.

·         In the near to longer term, metals other than gold are likely to outperform with Silver and Platinum to rise due to stronger industrial demand.

·         As a matter of fact all the influences that could have triggered gold rates have been factored in and world is more or less accustomed to such scenarios.

·         Analyst Carsten Menke at Julius Baer in Zurich recently quoted that “ You had a decent set of risk factors that supported gold over the past few weeks and I’d argue that most of them are priced out of the market again and that’s why we believe that prices should reach $ 1,200/- over the next three months.

DOMESTIC FACTORS:

·         Incumbent Indian Government is on a roll winning back to back state and local elections under leadership of Narendra Modi. Indian Government is confident of initiating with bold economic reforms and has thus regained confidence of foreign investors back. Indian Rupee is expected to strengthen or stabilize in days to come and gold rates are expected to settle in line with the same. Sensex is scaling new highs on positive commentary by World Bank, IMF and Rating Agencies. Indian Investors seems to be more optimistic and lured to Stock market and Mutual funds rather than gold as per the current scenario. Currently it makes a sense investing in selective stock scrips rather than in gold or other assets as they are expected to outperform them.

·         It has been mandatory to quote PAN number on Jewellery purchases above INR 2,00,000 is surely keeping big buyers away from the discretionary buying.

·         The introduction of 1% excise duty was a tough decision to be introduced and is definitely distorting gold buying sentiment.

·         Government initiated a bold move by placing a CAP of 3 lakhs on all cash transactions. Jewellery was bought in cash in India so far. Going forward this will definitely dent purchasing power of customers who were inclined to buy gold in cash.

·         Indian Economy is gradually recovering after Demonetization shudder and buyers are yet not convinced with higher gold prices prevailing in the market. Though jeweler merchants are coming up with innovative schemes and freebies genuine gold buying is yet to get uptick.

·         The major chunk of investors in India belong to Rural areas. Agricultural sector is going through tough times since last few years. In near future gold does not seem to be a wish list amongst rural segment and thus demand for gold can be predicted neutral.

·         Real Estate in India is also witnessing one of the most gloomy days and it has failed to generate desired level of appreciation. There is pile of unsold inventory across major parts of India. Indian Government is trying to rejuvenate the Real Estate sector as well as there is even support from the builders. The real estate prices have bottomed out and builders are offering genuine discounts  With the increase in nuclear families and urbanization, this phase seems to play a vital role for 1st home buyers and investors. Real estate sector just might capitalize on Real Estate turbulence and edge out investors inclined towards gold.

·         Total consumer demand in India is down by almost 22% the lowest in a decade. (Source: Money Control).

·         With changing demographic condition and globalization the “needs and wants” of Indians have been drastically redefined. There has been a significant rise in disposable income as well as discretionary expense sentiment. With the increase in education and social media awareness, Indians now do more analysis and opt for investment option syncing with their retirement and family needs rather than relying only Gold as a “Safe Heaven instrument.”

·         Going by the rituals, I would prefer to buy gold but at this point of time  would rather opt for exchanging gold if at zero or nominal deduction and convince my wife by paying only making charges.

Contributed by Our Active Member - CA Falgun Shah