The metal has delivered CAGR returns of around 13% in rupee terms and 8% in dollar terms in the last 10 years
Dhanteras is an auspicious day for making purchases, and traditionally, most people buy gold or silver.
In India, gold is mainly purchased during festivals or marriages and other special occasions. "People in India still prefer to purchase gold in physical form,’’ says Lakshmi Iyer, CIO, debt & head of products, Kotak Mahindra AMC.
"The percentage share of gold in the investment portfolio of the average Indian today is anywhere between 25 to 30% of the total portfolio,’’ says Yogita Dand, certified financial planner (CFP). The gold is mainly held in the form of jewellery.
But this scenario could change in the years to come. "The recent import figures show that Indian gold imports have severely come down that hints at either a change in the preferences of buyers or availability of smuggled gold,’’ says Hareesh V, research head, Geofin Comtrade.
One reason is that due to the availability of other alternatives, the appetite for gold jewellery among women has reduced. "The performance of equity market and prevailing high local prices due to weak currency have affected the gold buyers as well,’’ points out Hareesh.
Also, the government has taken several steps to promote investment in non-physical gold investment products like Sovereign Gold Bonds (SGB). "There were more than 2 lakh applications for the fifth tranche (of SGB). Definitely, awareness about gold bond scheme amongst local investors, and especially, rural areas will fetch some attention for paper gold as an alternative investment to the physical,’’ says Abhishek Goenka, CEO & founder, IFA GLOBAL.
The moot question is whether the returns justify the investments in gold? "Even though we have seen weak gold prices over the last three years, the precious metal has delivered CAGR returns of around 13% in rupee terms and 8% in dollar terms in the last 10 years,’’ says Avnish Jain, head, fixed income, Canara Robeco Mutual Fund.
Going forward, gold prices are expected to be driven by the US Federal Reserve’s interest rate policy stance in the near to medium term. "We might see further weakness in the gold prices ahead of a likely US interest rate rise in December. The price fall may attract physical demand as well as bargain hunting. The macro picture for being bullish remains sound,’’ says Iyer.
In the immediate run, Indian gold prices are likely to stay steady with mild positive bias due to peak festive season and marriage demand. "Meanwhile, on a medium to long-term basis, domestic gold prices can drop around 12-15%,’’ predicts Hareesh.
As an asset class, gold has lost out to higher returns from other asset classes. "Returns on equities and bonds at 12-13% dwarf gold's 0.9% in terms of rupees since 2013,’’ points out Goenka.
But over the years, gold has earned a place for itself in the investment portfolio as a hedge against inflation and crisis. "In times of recessions, it (gold) has a tendency to move up fast as it provides financial security as well as solace to the person holding it,’’ says Dand.
"So if the US does see a recession in the coming months, there are chances that gold would be hoarded and the prices may rise sharply,’’ says Dand.
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