Shreya Sachdev, a senior executive at a multinational in Gurgaon, invested in a gold systematic investment plan a year ago when the yellow metal was peaking.
When prices plunged last month, she also bought physical gold in the expectation of large gains when the price recovered. Now, she is not sure whether she made the right call.
Like Sachdev, many Indians have rushed to buy gold following the fall in prices. But they may have to wait a long time for anticipated returns to materialise. Analysts said the yellow metal, which has delivered annual returns of 18% over the past five years, is unlikely to rise any more.
“The last five years were good for investors,” said CP Krishnan, whole time director, Geojit Comtrade, commodities research and trading firm.
“However, the metal is expected to give muted or negative returns over the next five years. It has entered a bear phase,” said Krishnan.
In India, traders expect gold, which closed at Rs. 26,350 per 10 gm in the Mumbai bullion market on Thursday, to trade in the Rs. 25,000-26,500 range over the next few years.
Gold, typically, takes about five years to come out of a bear cycle. In the 15 years before 2008, it gave an average annual return of 6.5%.
“Investors with a long term view (5-10 years), however, may get annualised returns of around 8% to 10% from gold,” said Sudip Bandyopadhyay, managing director and CEO, Destimoney Securities, a leading financial services company.
The yellow metal’s downward journey is because of global factors. Its status as a safe haven investment in times of political and economic uncertainty has waned following signs of recovery in the US economy and an uptrend in global stock markets.
Then, there are fears that the economic crisis in Eurozone countries such as Cyprus, Italy and Portugal may force them to sell a portion of their bullion reserves, leading to oversupply of gold.
“Currently, investors are pulling money out of commodities and betting on equities both in the US and in emerging economies,” said Indranil Pan, chief economist, Kotak Mahindra Bank. “Gold prices may fall to $1,300-1,320 (Rs 71,245-72,340) per ounce in the near term,” he added.