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Buying gold on Akshaya Tritiya? Look before you leap

For anybody wanting to buy gold and hold in for one year, there are many blocks

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Just like every other year, gold prices at bullion dealers in India are trading at a premium over official prices as jewellers have raised purchases ahead of Akshaya Tritiya festival (April 28), when buying gold is considered auspicious.

Everybody thinks it’s a great time to buy gold, since demand is anticipated to be good. However, historical analysis of gold price trends across Akshaya Tritiya festivals doesn’t suggest gains for somebody buying gold for investment gains. Experts told DNA Money that buying gold with short-term tenures could be hazardous, and the future in the next 6-12 months at least seems wobbly, given the stance of US monetary policies and GST intricacies.

History lessons: Gold prices denominated in rupees haven’t moved much since last Akshaya Tritiya in 2016. Clearly at the price of Rs 30,000 (10 gms), the demand of gold has not outstripped demand. If that had been the case, gold prices would have risen. Way back in 2014 Akshaya Tritiya too, gold prices had crossed the psychologically important level - Rs 30,000. By next year, gold prices crashed nearly 11% to taste Rs 27,000 range.

“Gold price levels do impact the psyche of buyers. I am not talking about token purchases, which are done on Akshaya Tritiya. For anybody wanting to buy gold and hold in for one year, there are many blocks. While gold should be 10-15% of an individual’s portfolio, buying gold with a short-term horizon is a risky affair,” says Pradeep Sharma, a financial advisor who is telling clients to resist buying large quantities of gold.

With options ranging from buying physical gold in bars and coins, to exchange traded funds, gold avenues are multiples. But an investment in gold means you expect prices to appreciate from here on.

GST and dollar cloud: The goods and services tax (GST) issues are also a cloud floating in the horizon. Ishu Datwani, founder of jewellery brand Anmol says, “The initial two months will be a difficult phase as we will have to understand the intricacies of GST. Depending on the quantum of tax imposed on jewellery, there will be a resistance initially but eventually, things will settle in about two-three months.”

Aditya Pethe, director, WHP Jewellers also feels that post GST implementation, it will take the initial quarter for the buyers and sellers to get accustomed to the new tax policy.

Indians buy gold prices in rupees. However, gold is an asset that is traded in US dollar world over. This is why a bet on gold also becomes an indirect bet on dollar-rupee equation. The domestic price includes a 10% import tax as well. So, anybody thinking of buying gold to make quick gains need to understand the foreign exchange situation as well, say gold dealers.

To understand how global gold price may not mean equal gains in Indian gold price, look at recent instances. Global gold prices posted 3% spike in in the first two weeks of April 2017. This latest upsurge came on the back of rising geopolitical tensions. The US’ airstrike in Syria and squabble with North Korea along with the call for early general elections in the UK are some of the causal factors. Gold prices have moved up over 11% since December 2016. But gold prices in India have not kept up with the rise in global prices, surging about 6% year to date. This is because the strong rupee appreciation during this period has capped the rise in rupee terms, said gold trade analysts.

Trump trade: Fund managers, who deal in gold for asset management companies, too indicate a watchful stance. In his monthly outlook, Chirag Mehta, senior fund manager – alternate investments, Quantum AMC says, “In the short term though, gold remains vulnerable to the downside as hopes surrounding the Fed reflationary policies continue to thrive.” Mehta adds that when markets lose their faith in the pro-growth policies of Trump or its inability to get consensus on its side, it could lead to turmoil in financial markets. This will then force the Fed to adopt a more dovish stance, and gold should start moving northwards.

Sachin Jain and Jaimin Desai, analysts at ICICI Securities, say that gold has historically been looked at as a relatively risk-free, safe haven asset, and its price movement both in India and globally takes encouragement from any actual or perceived risk build-up on economic, political or natural fronts. “In the meantime, near term prices could remain range bound pending possible fallout from political uncertainty in Europe and the new US President’s fiscal direction. Election outcomes in countries such as France, Germany and the Netherlands would be watched,” they said.

GO BEYOND GLITTER

  1. For anybody wanting to buy gold and hold in for one year, there are many blocks
     
  2. Investment in gold means you expect prices to appreciate, despite the multiple avenues
     
  3. It will take the initial quarter to get accustomed to GST’s new tax policy
     
  4. Indians buy gold in rupees. However, gold is an asset that is traded in US dollar
     
  5. This is why a bet on gold also becomes an indirect bet on the dollar-rupee equation
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