In recent years, gold has proven to be one of the best investment avenues. From Diwali 2018 to Diwali 2019, it gave a 20 percent yield. In the last year, it has outperformed that performance, with a return of 31 percent. And it can replicate this stellar performance for another year, analysts believe.
“Prices are close to Rs 50,000 per 10 grams now and there is no better time to accumulate gold as an investor, especially those who missed the recent rally. The future still looks promising for gold prices considering the festive demand, the uncertainty linked to the US elections with a possible new president-elect that will bring many policy changes, “said Sunilkumar Katke, director of commodities and currencies of Axis Securities.
Aside from the good luck charm, gold has been used extensively as an investment and to store value, especially in times of crisis. It also provides a hedge against inflation.
How much return is possible?
Financial advisers say that gold should be an important part of any investor’s asset allocation strategy. In an ETMarkets.com survey, analysts suggested assigning a weight of 5 to 15 percent to gold. So what kind of benefits can be expected from the yellow metal?
In the short term, analysts believe that the metal will reach the Rs 53,500 level, which is a rise of around 7 percent from current levels. In the long term, it is likely to hit new all-time highs, analysts said.
“For the long term, buy gold in a staggered fashion at the first levels of around 49,200-48,700 rupees per 10 grams and the second level of 47,700 rupees for a price target of 56,100 rupees initially and then 60,500 rupees,” Sugandha Sachdeva said, Vice President Metals, Energy & Currency Research, Religious Brokerage.
This translates into a potential hike of more than 20 percent.
Gold ETFs: the best way to invest?
There are three predominant ways to invest in gold: physical metal, gold sovereign bonds, and gold ETFs, the latter of which is gaining traction lately, especially among the younger generation who don’t want to manipulate physical gold.
In addition to jewelry, traditionally gold coins or gold bars have been the default choice for most investors. But now the gold ETF provides a profitable and convenient way to buy gold for investment purposes. They are also the best way to invest in small amounts or on a regular basis. Furthermore, they are relatively easier to liquidate as they are traded on exchanges.
“Compared to physical gold, gold ETFs offer a few distinct advantages, such as less concern about storage and theft, as it is kept in Demat form, a lower acquisition cost given the absence of fees and other related expenses. For those investors looking to meet any future gold requirements, they can consider doing a SIP for as little as Rs 1,000 each month in Gold Fund of Funds. This will allow them to collect units of gold over a period of time, ”said Nitin Kabadi, Director of ETF Business, ICICI Prudential AMC.
Gold ETFs have been piling up investments for the past few months, especially as stocks have exited. The category continued to receive net entries also in October. That made it an unbroken net inflow for seven straight months.
The Gold ETF category received a net entry of around Rs 597.3 crore in September and Rs 384.2 crore in October. So far this year, the category has received a net inflow of Rs 6,341.2 crore, according to Morningstar data.
“With all major economies struggling to get back on the growth trajectory due to the huge and adverse economic impact of the coronavirus pandemic, gold, with its safe haven appeal, has emerged as one of the best performing asset classes and a preferred investment destination among investors, ”said Himanshu Srivastava, Associate Director – Research Manager, Morningstar India.
Some brokers like 5Paisa allow investors to buy for as little as Rs 50. “Paper gold is gaining popularity among millennials and zillenials. Many young people understand the importance of gold as an investment in a diversified portfolio and not just as pieces of jewelry. They want it to become a liquid investment. Also many want to invest in gold as stocks and mutual funds in small amounts, “said Prakarsh Gagdani, CEO of 5Paisa.com.
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