Dhanteras: Gold at 6-year high, but look before you invest in it

NEW DELHI: If you think that the rally in gold prices may have brought the bulls back to the yellow metal counter, it’s time to do a rethink.

Buying gold on Dhanteras — considered as the most auspicious day to buy jewellery — may carry a sentimental upside, but analysts say such buying for the investment purpose may be a naive decision.

“Diwali is closing in and the general ideology of the masses is to buy gold due to which gold prices tend to go higher than usual. But recommending someone to buy gold during this period would be a naive advice,” says Brijesh Parnami, Executive Director and CEO of Essel Wealth Services.

“People tend to buy gold for religious or sentimental reasons as it is considered auspicious. But history suggests that if the same amount would have been invested in mutual fund or some other mode of investment, it would have generated higher returns. Gold prices are unstable, but it should still be a part of any growing portfolio. As most of the markets are taking a dive, having gold in a portfolio works as a hedging agent against market uncertainties,” Parnami added.

Gold prices have jumped nearly 7 per cent since last Dhanteras (October 17). But in the previous five years — from Dhanteras to Dhanteras except for 2016 when the return was 16.46 per cent — the yellow metal has delivered negative returns anywhere between 3 per cent and 10 per cent.

“Despite many global events lined up, there has been no respite to gold prices overseas,” said Prathamesh Mallya, Chief Analyst – Commodities Currency at Angel Broking.

He noted that the yellow metal prices globally are down 6 per cent year-to-date and it is just because of the sharp rupee depreciation, its prices in India are up 8 per cent during the same period.

Mallya saw gold prices globally trading in a range of a possible $1,120 an ounce on the downside and $1,300 on the upside. “I am not so bullish on this counter,” he said.

Dhirendra Kumar, CEO at Value Research, is on the same page, who is of the view that gold as an investment avenue should be ruled out.

“You should look at it as a consumption, as a stuff of pleasure because gold in the form of jewellery has the highest transaction cost or has highest overhead (making charges). Ever since sovereign gold bonds have come into existence, gold ETF has turned out to be the finest form of owning, trying to ride on gold’s appreciation. My opinion is gold is not a valid investment. It is a repository of value. It has ability to beat inflation, but its economic rationale is not too strong enough,” Kumar told ETNow.

Kumar said he would look at gold bonds as a very unusual investment. But it happens to be the most efficient way of owning gold in a financial framework because that gets you 4 per cent return, more than that of gold appreciation, he explained.

“Gold ETFs and gold funds come with expense ratio and given the long-term outlook vis-a-vis equity, fixed income or real estate, gold does not stand a chance,” Kumar said further.

On Monday, the yellow metal quoted at a nearly six-year high of Rs 31,565 per 10 grams, MCX spot data suggest.

According to Parnami, an investor in 25-35 year age bracket should normally maintain 70 per cent in equity, 15 per cent in debt, 10 per cent in gold and 5 per cent in liquid assets. The older ones should park more funds in debt instruments and their gold should be in the range of 10-15 per cent.

Jaideep Hansraj, CEO-Wealth Management, Kotak Mahindra Bank, whose company caters to HNIs, said gold acts as a perfect hedge for currency swings as ultimately gold is priced in dollar per ounce.

“In risk off mode, there could be some allocation, which I am seeing people making towards gold. But I do not think that will be a substantially big number from a high net worth point of view,” he said.

الموقع يستعمل RSS Poster بدعم القاهرة اليوم