Dhanteras, deemed an auspicious day to buy gold, is here and there are good reasons, other than strong symbolic and cultural significance, to buy the yellow metal today. A weak rupee, strong buying by central banks and inflationary expectations have all supported gold prices this year and if we were to go by what analysts say gold prices may hit Rs 63,000-68,000 per 10 grams levels in the next one year.
An inseparable part of Indian festivities, gold is a symbol of prosperity that also act as a hedge against inflation. One can either look at traditional options like gold jewellery and coins or gold exchange traded funds (ETFs) and sovereign gold bonds (SGBs) to invest in gold.
Data showed had an investor invested in gold around Diwali 2019, by this day s/he would have been sitting on 60 per cent returns. SPDR gold logged a 10 per cent return in the 1-year period while gains from domestic Gold ETFs stood a healthy 15 per cent during the same period.
Deveya Gaglani of Axis Securities said: “Many festivals in India are considered auspicious to buy gold, and Dhanteras is among the favourites. In India, people invest in gold for long-term gains. That is why Indian households have the highest reserves of gold, roughly Rs 21,000 tonne. Gold is very close to Indian’s hearts and is a more sentimental investment than a speculative one. Since Dhanteras last year, Gold has given a return of almost 20 per cent, easily beating Nifty returns.”
Gold prices which were range-bound lately due to strong dollar index and the hawkish Fed stance jumped recently, as a war broke out between Israel and Hamas. “This geopolitical tension in the Middle East boosted gold prices as it gained almost 10 per cent from the recent swing lows and made a multi-month high of Rs 61,500 level as investors flocked towards gold due to its safe-haven appeal. With the US election around the corner in 2024 and the geopolitical situation worldwide, the sky-high interest will not sustain for a long period. The Fed will eventually start cutting the rates, supporting gold prices,” Gaglani said.
Risk premium is being priced in gold — from pandemic to Russia-Ukraine war and the latest Israel-Hamas dispute, said Motilal Oswal Securities. “An ease off in the Middle East dispute and/or continuation of hawkish stance from Fed could weigh on gold prices. But these factors have potential to drag for longer than expected and, thus, keep the party going for the gold bulls, helping it guide towards medium target of Rs 63,000.”
Nirpendra Yadav, Senior Commodity Research Analyst at Swastika Investmart expects gold prices to move towards $2,250 per ounce globally and Rs 64,000-66,000 per ten grams in the year 2024. The gold prices have crucial support at Rs 56,000, he said.
“In times of uncertainty, the role of gold comes into play, and it saves investors’ money from devaluation due to geopolitical tension, economic turmoil, and natural calamities. Inflation has risen globally and gold is the best asset class to hedge against An interest rate cut in the US is expected in mid-2024, which may support gold prices. The ongoing geopolitical tension and fear of recession have elevated the demand for safe havens, and this may continue into 2024,” Yadav said.
Not only demand of physical gold is expected to remain firm, there interest in gold ETFs has also risen of late, notwithstanding the recent changes in tax norms. Analysts noted that gains from investments in gold funds are taxed at the slab rate irrespective of the holding period while in case of physical gold, the long-term capital gains, after three years are taxed at 20 per cent with indexation benefit.
“However, it is important to note that buying physical gold comes with its fair share of risk including storage, theft and impurities thereby impacting the returns. Gold ETFs are comparatively safer as they are governed by tight regulations and are traded on exchanges on real time basis. Moreover, the price of gold and its returns in ETF is the same as physical gold and the cost of buying gold ETF is lower as compared to buying the yellow metal,” ICRA said in a recent note.
Sovereign gold bonds is another way of investing in gold.
On gold outlook, Religare Securities said: “Participants can accumulate gold in a staggered manner near the Rs 59,300-59,500range for the upside potential of Rs 62,600 per 10 grams initially and next at Rs 68,150 per 10 grams levels. On the flip side, a decisive break below the previous swing low of Rs 56,500 per 10 grams would subside the positive tone and open the doors for Rs 52,600 per 10 gram levels,” it said.
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