NEW DELHI: Indian investors have shown marked preference for financial investments in the last two years (forced in part by demonetisation), pushing mutual fund Assets Under Management to an all-time high last September. Physical assets took a back seat, including gold. India’s demand for gold jewellery weakened marginally on year to 598 tonnes from 601.9 tonnes. The bar and coin market too saw annual demand fall 4 per cent to 106.2 tonnes in 2018, according to the World Gold Council report.
“The weakness of the Indian rupee pushed the gold price to Rs 31,900/10g during October, its highest level since June 2012. And India’s leading stock market — the SENSEX — continued to hit new highs, grabbing the attention of many urban investors. Finally, the government’s continued clamp down on illicit money has removed an element of demand from the market,” WGC said.
Since September, the equity markets have turned highly volatile, mutual fund flows have moderated a bit, and experts expect some more volatility ahead on account of global trade, economic concerns as well as upcoming national elections. This may be the time cautious investors could shift back to gold, for the yellow metal has always had a safe haven status when other asset classes turn volatile.
From hovering around Rs 30,000/10g for months, prices of gold on MCX moved up, making a steady climb to Rs 33,000/10g. Earlier this week, in the retail market, it jumped above Rs 34,400/10g, not far from a record high of Rs 35,074 hit in August 2013. Local prices have jumped more than 13 per cent in the last six months.
Experts said that a multitude of factors ranging from demand for jewellery to geopolitical reasons impacting the demand for gold in India. WGC expects jewellery demand in India to pick up this year with more auspicious days mentioned in the calendar. Whenever there is uncertainty and macroeconomic concerns such as a tariff-driven trade war, people tend to gather gold.
As per a recent report by Karvy Consultants, this year is foreseen as a mixed one for the commodities and currencies market. “Forecast of two interest rate hikes in the year 2019 by the US Federal Reserve will lead to increased investment in the bullion,” the report said.
Ramesh Varakhedkar, CEO, Commodities & Currencies, said, “Given the global economic uncertainties that could prevail, 2019 is expected to be the year of bullion where gold and silver are likely to be outperformers.”
Further, the ability of gold to hedge the volatilities increases its demand. Gold and equity are negatively correlated to each other. When equity markets are under stress, gold prices tend to be high.But with gold prices nearing an all-time high, is it a good time to invest in it? Experts say the current prices are too high and the returns can be meagre at these points.
A recent PTI report, quoting a Mumbai-based dealer, said that the rally has, however, been prompting many retail consumers to postpone purchases and has encouraged selling. “Some retail consumers are selling gold instead of buying. They are cashing in on higher prices,” the dealer said.