If prices are any indication, Indians weren’t quite sprinting to stock up jewellery and add some glitter to their savings portfolio this Akshaya Tritiya.
Gold prices on Tuesday fell by Rs 100 to close at Rs 27,100 per 10 gm in Delhi, despite jostling customers at jewellery showrooms. The auspicious-buying spree was visible with some jewelers reporting a 15% rise in sales over last year. But the spurt in sales wasn’t strong enough to even match the available supplies.
Hence, prices fell, albeit marginally.
The reasons, analysts said, were because of gold’s relatively poor returns vis-à-vis equities.
Besides, with the dollar strengthening and interest rates expected to rise in the US, customers and wealth managers expect gold prices to fall even further.
“Investors are not bullish on gold due to the proposed move to raise rates in the US,” said Hareesh V, research head at Geofin Comtrade. “Since returns from gold are lowest among various asset classes, it is not being considered actively now”.
Gold is considered to be a safe haven asset. In times of low inflation and stable stock markets, gold prices usually tend fall. This seems to playing out in the India now, regardless the volatility in stock markets in the last few days.
“An investment case for gold is very weak these days,” said Ashish Shankar, head investment advisory at Motilal Oswal Private Wealth Management. “The interest rate hike and the benign inflation there, has taken away the use of the gold as a hedging tool against inflation,” he added.
Over the last 12 months, investment in gold would have eroded by 10%. Equities, on the other hand would have fetched a return of 15%.
However, despite high taxes, India continues to be the world’s largest buyer of gold at 843 tonnes in 2014, with China coming a close second at 813 tonnes.
Also, the severe damage to crops caused by an unseasonal spell of hailstorms across several states that has devastated ripening winter-sown crops and can also potentially hurt gold demand from rural families.
According to experts, as a pure investment, gold should not account for more than 5-10% of one’s investment. Wealth managers said that investors should spread the risk across assets classes.
“A hybrid strategy which incorporates gold in the portfolio from a risk mitigation perspective has the potential to enhance returns without a proportionate increase in risk,” says Rajiv Shastri, MD and CEO, Peerless Fund Management.
“Our statistical analysis shows that in a portfolio with a right mix of equity, bonds and gold; minimum returns generated over 5 year periods are higher than the median returns generated by bond funds,” he said.
Most advisors look at investments in gold exchange traded funds as an investment option. According to the National Stock Exchange, which accounts for 91.16% of the gold ETFs market, the ETFs share is rising. At present, gold ETF turnover is Rs 31.25 crore, compared to Rs 10.78 crore in the previous year.
Analysts say, however, gold buying will continue to see a spurt during festivals.