The outlook on gold for FY19 is largely bearish and the current trend in gold prices seems similar to the one in May 2014, Sunand Subramaniam, Senior Research Analyst, Choice Broking, said in an interview to Moneycontrol’s Sunil Shankar Matkar.
Q) Is gold really a safe bet as we always see whenever global turmoil happens, gold gains ground? Is gold really a better option than shares?
A) Preferably yes, as value for gold would never come down to zero due to its supply-demand factors. It also serves like a common currency (like US dollar) across the globe and is tradable at any destination/location.
For medium-term and long-term investments, gold is a better option as compared to shares, as value of shares depends on how the company is performing and how strong the company’s fundamentals are, which may vary from time to time.
Overall demand for gold in India is on the rise and provides a good opportunity for investments.
Q) Should gold be a part of your portfolio? What percentage should one allocate for gold?
A) Gold serves as a safe haven during a time of crises, economic slowdown or geopolitical factors hampering the growth of our country. Hence it should be a part of our portfolio and one should allocate 5-10 percent of the total portfolio for gold.
Percentage of gold investments also depends on the size of the portfolio and risk appetite. If the size of the portfolio is larger, we can allocate more investments for gold and vice versa.
An aggressive investor who is ready to take up higher amount of risk is likely to increase investments in gold, while a conservative investor is likely to invest in gold in smaller portions.
Q) What is your outlook on gold for FY19, or till Akshaya Tritiya next year?
A) Since Akshaya Tritiya in 2019 is on May 7, it happens to be coinciding with the general elections. Global sentiment for the Indian economy is estimated to be positive. This would eventually boost the investments for equity share markets as compared to gold.
Hence our outlook for gold is expected to be bearish and the trend for gold is estimated to be similar to that of May 2014.
Q) To invest in goldm which is the better option – physical gold, buying gold in futures and options, investing in gold through gold ETFs or buying gold through monthly schemes?
A) Buying physical gold invites added costs and isn’t free from hassles. There is also less transparency in pricing. Purity of gold in coins and biscuits can be a question of doubt. In case of jewellery, value for gold can be lower than what has been estimated (usually 5 percent lower).
Also, safety issues and possibility of theft is higher than other methods of investments. Investments in gold futures may add risk factor, but also adds wealth creation for the investor in the medium and long term. An investor in futures can also roll over his positions on a contract basis in order to avoid immediate physical delivery.
Options have the highest amount of risk when compared to futures and physical delivery. Traders and investors who are ready to take up the high risk in order to attract maximum returns can also use gold options. Gold ETFs, though less risky than futures and options, also provide an option of holding gold in electronic form, avoiding problems of storage and with safety options. The tax treatment also gives gold ETFs an advantage over bullion.
Long-term capital gains in gold ETFs, which are taxed at a lower rate, become applicable if the holding period exceeds one year, compared with three years for physical gold (which also attracts wealth tax). Besides, we can buy gold units equivalent to even half a gram of physical gold, allowing us to invest smaller amounts in the precious metal. Monthly scheme of gold investments, also known as a SIP (Systematic Investment Plan), serves as a low risk investment tool for gold and is an open ended fund.
Through monthly scheme of investments, an investor does not require a demat account, which is required in the case of ETFs. However, this convenience comes at a slightly higher cost in the form of annual expenses of around 1.5 percent of the asset under management, whereas it is around 1 percent in case of gold ETFs.
In conclusion, both gold ETFs and monthly schemes serve as better options than the above-mentioned types of investments. However, it all depends on the investor and risk appetite that he/she is ready to take up, in case the investor wants to switch to other forms of gold investments.