Gold shines over equities in last one year

Invested in gold last year? You have reason to cheer.

The price of the yellow metal is currently hovering around ₹31,050 per 10 grams, compared to ₹25,000 per 10 grams in August last year, a 25% rise. In contrast, the BSE Sensex has declined 0.5% over the same period.

The rise in domestic gold prices comes on the back of a global rally spurred by volatile equity markets — in times of uncertainty, investors pull out money from other asset classes and invest in the yellow metal. Concerns over UK’s vote to leave the European Union (EU), and lowering of interest rates in Japan and the EU also hit equities.

“Recently, the winding back of expectations of a US interest rate hike, volatility in equities, bond yields turning negative and general fear around the global outlook have all contributed to gold’s solid performance and constructive outlook,” according to a report by SMC Global Securities.

Global gold exchange-traded funds held gold holdings worth 2,240 tonnes at the end of July, adding 630 tonnes since January 2016. However, the sharp rise in price has had a negative impact on demand in India, which is among the top two markets for gold. Gold imports in July are estimated to have been around 20 tonnes, down 79% from a year-ago, due to a large inventory.

According to traders, mandatory PAN card disclosure on gold buys above ₹2 lakh have also hit the business hard. “The pan card issue has affected business by 40%. Customs duty also remains high,” said Sreedhar GV, chairman, All India Gems and Jewellery Trade Federation (GJF).

But should one buy gold now? Experts see a correction of around ₹1,000 per 10 grams over the next one month. However, in the long term, customers should use even a small correction to accumulate gold, they added.

“We have been bullish on gold since October. Nearly $12 trillion worth of investments are currently in negative yielding instruments. Even if 2% of those assets shift to gold, prices will hit $1,600 an ounce,” said Kishore Narne, head of commodities at Motilal Oswal Financial Services.

In the domestic market, prices are expected to top ₹35,000 per 10 grams in the next one year.

“The near-zero to negative interest rates in Europe, the UK and Japan will continue to drive a rally in gold,” Narne added.

After two years of drought, a good rainfall this year is expected to boost rural incomes, which traders hope will help revive gold demand and support high prices.

A recent report by Kotak Wealth Management shows that the super-rich prefer investing in gold and silver. “Physical buying is the preferred purchasing method for 80% of ultra HNIs (high networth individuals) investing in gold and 74% of those investing in silver.”