Indian women’s love affair with gold is well known. With the festival to celebrate the bond between brother and sister, Raksha Bandhan, around the corner, what better gift than the yellow metal that gives instant gratification as well as acts as a long-term investment. But given a volatile market and disturbance at the macro level, is gold a good gifting option this year?
International gold prices fell below $1,800 an ounce to mid-$1,700 levels in July this year as a stronger dollar created headwinds for the metal. The dollar, says Chirag Mehta, chief investment officer, Quantum AMC, was buoyed to near two-decade highs due to the aggressive monetary tightening by the U.S. Fed compared to its peers in Europe and other regions.
Domestic gold prices (24 karat) have remained well above ₹50,000 per 10 gram in the last six months.
Downside risk persists
Investors currently see a 50-basis-point hike in interest rates in September. We believe, says Mehta of Quantum AMC, that going forward the Fed will tighten less aggressively and try to support growth as much as they can, given the inflationary pressures are starting to subside. This bodes well for gold prices, however, there are still downside risks to our view, he adds.
There is a possibility, explains Mehta that the Russia-Ukraine war will continue to put upward pressure on oil and gas prices, especially during the winters. “This could result in higher inflation that would put the Federal Reserve in a fix. However, it is highly likely that Fed will not tolerate any negative impact on growth and may go soft on the tightening,” believes Mehta.
In fact, as per Mehta, the futures markets are implying rate cuts in 2023. This will create tailwinds for gold again leading to repricing on the upside.
Should you buy gold now?
It is a good time to start investing, believe experts. Indian gold rates follow global trends which have recently seen a dip in numbers. Nishit Nanda, CEO, Youlry.com, however believes it is all a part of the market dynamics that keep shifting. “Gold futures look strong — given the current drop in gold rates and the beginning of the festive season upon us, gold jewellery would be a strong contender when it comes to solid assets, especially for those who are younger,” says Nanda.
Physical gold jewellery, as per Sameer Nanda, CEO-merchandising, KD Gold and Diamonds, is a great gifting option for Raksha Bandhan not only because it is traditional but also because it is versatile, and its value increases over time, ensuring protection against inflation for your loved ones. “Dainty gold pendants, earrings or bracelets in contemporary designs, will be loved by the sisters,” says Sameer Nanda. If unsure of your sister's choice, he adds, then gold coins are also a great option.
Those looking to invest in digital gold, may look at systematic investment in the yellow metal. “Given the tremendous macroeconomic uncertainties that plague the future, it would be better,” says Mehta of Quantum AMC, “to allocate to portfolio diversifiers like gold and use the current consolidation in gold by accumulating systematically to build one’s allocation.”
“Gold should prove a better allocation if inflation persists, geopolitical tensions escalate, or if broad-based slowdown manifests leading central banks to resort to their usual policy response of adding liquidity and cutting rates, thereby effectively be geared to reduce portfolio volatility,” adds Pathak.
Apart from physical or digital gold, bluechip stocks and SIP in mutual funds make for great beginner-level investment avenues when it comes to gifting something utilitarian and lifelong to your loved ones this Rakhi, says Nanda of Youlry.com.