The Hindu Business Line : Gold fails to keep pace with other asset class

Mumbai, Oct. 12 In recent times, returns on investment in gold in the domestic market have not kept pace with other asset classes. Lower returns on gold investment have disappointed investors. Rising international prices as reflected in high domestic market has resulted in a slowdown in physical consumption demand.

The stock market has rallied more robustly than many asset classes. Lot more investor interest is diverted towards it. Internationally, gold prices have risen too, reaching a 28-year high of $750 plus recently. Crude is also up around $80 a barrel. Wheat and other agri-commodities have rallied too for various reasons.

Interestingly, investment options now stand widened. Equities, energy and agri-commodities have appreciated much faster than gold has. Indeed, for a considerable part of this year, gold languished and failed to break critical upside barriers in the international market which sent negative signals to domestic investors.

Despite rising global gold prices, the domestic market bucked the trend since the rupee continued to gather strength steadily vis-À-vis the dollar. So, the landed cost of imported yellow metal in India was on occasions lower despite firmer overseas advices. Although gold prices in the domestic market remain range bound between Rs 9,500 to 9,600 per 10 gm, overall volatility in the gold market is keeping investors at bay, said leading jewellery company proprietor.

Investment in gold over the year has given modest returns of 9-10 per cent against usual expectations of 18-24 per cent, said Mr. Prithviraj Kothari, Director of Riddisiddhi Bullions Ltd. Last year most purchases of the yellow metal where contracted at Rs 8,800 per 10 gm.

Investors also don’t see a greater upside from the current price levels, even if prices where to reach Rs 10,000 per 10 gm, he added. Investors have diversified their investment into equity, real estate, and associated products which have given better yield. For jewellery retailers and wholesalers costing is an issue with limited appreciation in prices.

On average monthly demand in Mumbai this time round the year is around 35 to 40 tonnes. However there is hardly 100 kg demand a day of the yellow metal against average 1,300 kg a day, said Mr. Kothari.

Demand is slowing down for investment, although with people having earned handsome returns in the equity markets demand for fashion jewellery can be expect to pick up this seasons, he added.

Counters at banks that sell gold are bereft of commercial activity as investors are wary of purchasing the traditional safe haven commodity at higher levels as well amidst volatility, said an official from Axis Bank, adding that customers are waiting for some correction.

However there is no suggestion that the tradition and culture in gold is taking a turn.

Once there is profit booking even partial in the booming equity markets, money has to flow into the likes of bank deposits, gold, real estate, said Mr. Moses Harding, Executive Vice President of Indusind Bank.

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