With spot gold prices at Rs. 29,872 on Thursday, people looking to buy the precious metal as an investment option may need to give it a second thought, say analysts.
Their two cents: the metal, which is expected to remain range bound till December, may end up giving the lowest returns since 2010. In fact, cautionary notes suggest investors may end up losing money on gold investments and hence, should stay away for a while.
"The price of gold is now more dependent on announcement in the US and Europe than on fundamentals. Either way the returns or losses in gold could be around 5-10% and investors could avoid entering at such high levels for such small returns," said Atul Shah, head, commodities, Emkay Global Financial Services.
The World Gold Council (WGC) said India's demand for gold has come down by 38% in April-June from the year-ago period, while average prices have risen 33% in the same period.
The fall in demand is attributed partially due to the jewellers' strike in March and April to protest against the proposed levy of excise duty on unbranded jewellery in the Union budget. However, much of the weakness in demand is attributed to the high prices.
"The decline in demand is driven by Indian investors taking advantage of the weak rupee against the US dollar," said Ajay Mitra, managing director, India & Middle East, WGC.
"The fluctuations in the exchange rate and the rise in the gold price to Rs. 30,000 for 10 grams in June were compounded by domestic inflation and concerns over a weak monsoon season," said Mitra.
Monsoon plays a crucial role in gold demand, as 60% of the demand comes from rural India.
Currently, many investors are investing in gold as it's considered a safe investment but if the European or US economy recovers, these investors could move towards riskier investments, resulting in a crash in gold prices.
On the other hand, if these economies do not recover, gold prices have already moved to a level they cannot move beyond, leaving little scope for healthy returns.
"In India, investor demand is low. Demand is by consumers who are buying gold for social purposes like marriage," said Shah.
But, some say the way Indian capital markets and real estate are performing, returns in gold are not as disappointing.
"The returns in gold could be around 10%, which, given the situation, is good, and also, gold is a long-term investment," said Hitesh Jain, commodity analyst, IIFL.
Even Exchange Traded Funds (ETF) faced falling demand from April-June, said the WGC report.
"ETFs are long-term investments and globally prices (in dollar terms) came down considerably but demand was flat, which signifies investors are not worried," said Chirag Mehta, fund manager, Quantum gold savings fund and Quantum gold ETF.