Money & Banking

‘With tailwinds, gold price to go up further’

Keerthi Sanagasetti BL Research Bureau | Updated on August 29, 2020

(clockwise from top left) Vikram Dhawan, Head of Commodities & Fund Manager, Nippon India MF; Rajalakshmi Nirmal, Senior Deputy Editor, BusinessLine; Somasundaram PR, MD, World Gold Council; and Chirag Seth, Principal Consultant- South Asia Metals Focus, at the BL Webinar on Friday

Investing in gold SGBs or gold ETFs is the safest option: Vikram Dhawan

While the Covid-19 pandemic has severely impacted the jewellery demand for gold, the price of the yellow metal witnessed new highs, in both the domestic and international markets.

Explaining the disconnect between the demand (consumer) and the prices of gold, Chirag Seth, Principal Consultant- South Asia Metals Focus, compares the metal to a chameleon. He said, “currently, gold is behaving more like a currency.”

Citing similar occurrences in the past, he said, “During phases of decelerating economic growth, gold prices, no longer move in tandem with just the demand and supply dynamics of the metal. The prices, during such phases, are more reflective of the macro-economic conditions, the safe haven status of the asset and investor sentiments.”

He was speaking at the BusinessLine ‘Knowledge Series’ webinar on Gold as an investment option- risk and returns on Friday. The interaction threw light on several questions hovering in the minds of investors of the yellow metal - the form of investment to pick, asset allocation strategies and the price outlook for the metal.

Other panelists included Vikram Dhawan Head- Commodities and Fund Manager, Nippon India Mutual Fund and Somasundaram PR, Managing Director of the World Gold Council. The discussion was moderated by BusinessLine’s Senior Deputy Editor, Rajalakshmi Nirmal.

The ‘Amazon’ effect of ETFs

Vikram Dhawan said, “Gold funds and ETFs have taken gold investing to the mainstream. Investment in physical gold is now possible with a click of a button. With increasing ease for retail investors, the investment demand for gold has risen significantly.”

He added, “Dollar weakness and structural decline in nominal and real interest rates, are the tailwinds for gold prices currently.” As long as these fundamental drivers for the metal remain intact, Dhawan advises investors to stay invested in gold. “One must clearly demarcate every gold purchase into either of the three buckets - for consumption, as an investment, or as an insurance for your portfolio (protecting your returns on a rainy day),” said Dhawan. He said, “While you may continue to buy gold jewellery for the ‘feel good factor’, it is definitely a bad investment choice.”

Choice of investment

“The best way to invest in gold, is through gold funds or Sovereign Gold Bonds,” he added.

Talking about the gold schemes of jewelers and other investment options offered by digital wallets, Somasundaram PR said that“These are bound by no regulations, not just in India, but all through the world (barring Germany and China).”

“While the jewelers’ schemes are partly covered under the deposit rules of the Companies Act 2013, the digital wallets are currently not regulated by any governing body”, he added.

Published on August 28, 2020

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