NEW DELHI: Gold, the most acceptable metal of the world since 5,000 BC and especially so during a crisis, has been trading slow and sideways in the last few sessions as investors move money to riskier assets.
In 2021, the precious yellow metal lost much of its shine, thanks to the phenomenal bull run in local equity markets amid the global economic uncertainty caused by the Covid-19 pandemic.
In fact, the new-age cryptocurrency has given better returns than gold, forcing even those investors who were stubbornly bullish on the precious metal until recently to swerve to cryptocurrency.
Crypto enthusiasts have often called Bitcoin ‘digital gold’ predicting the popular virtual currency is likely to outshine the traditional bullion -- gold.
Is gold losing its sheen?
But, what speaks against gold -- the old-school safe-haven investment? Consider these numbers. From a peak of Rs 56,000 per 10 gm in August last year, the domestic price of gold has tumbled to Rs 47,487 currently.
Gold October future contract at Multi Commodity Exchange (MCX) closed at Rs 47,166 per 10 gm. In global markets, gold rates hit a seven-week high on Friday as slower job growth in the US eased concerns that the Federal Reserve will soon pare back stimulus. Spot gold rose over 1% to $1,830.
India, among the world’s biggest holders of gold, saw investments in crypto grow from about $200 million to nearly $40 billion in the past year, according to blockchain data platform Chainalysis. Bitcoin, for instance, was trading above $60,000 till recently rising from $0.08 at its launch in 2008.
“One of the reasons for gold moving sideways is that for some time there was an apprehension of US Fed tapering and rate hikes. Although this has changed now, there are no immediate triggers for a price hike. The price of the yellow metal would look upwards only if there is a renewed global uncertainty -- say, for instance, another Covid-19 wave, or geopolitical tensions,” said Joydeep Sen, founder wiseinvestor.in.
Besides, the strengthening of the rupee has been putting pressure on gold prices. Physical gold demand has remained subdued recently as jewelers held off purchases, hoping for a dip in prices.
Regardless of the demand, supply remains disproportionately low. Earlier, the precious metal also reacted to an increase in crude oil prices besides the fluctuations in the Dollar Index and Euro.
Now, however, it is reacting more to the performance of equity markets, which have been attracting a lot of capital flows and hitting new highs every week.
Market observers say stocks will continue to rise, even as there may be some intermittent corrections while the scope for returns in other asset classes, including gold remains scanty. For gold prices, the appealing Rs 50,000-level seems far away.
“Record-high benchmark indices led people to liquidate gold to buy stocks in the past few weeks. A consistently strong dollar also led to the decline. Don’t expect the prices to hit Rs 50,000-level this year,” said Hareesh V, Research Head Commodities at Geojit Financial Services.
Cryptocurrencies: Time for restraint
Of late, bitcoins have gained prominence as a store-of-value investment because, like gold, they tend to work as a hedge against currency devaluation and volatility, according to market watchers.
But with ambiguity around the legal status of cryptocurrencies in India, investors should be mindful of the risk of any adversarial regulatory move by the government or the Reserve Bank of India in the future.
While the government has sent mixed signals as far as cryptocurrencies are concerned, the RBI has been more categorical in its denouncement of digital currencies with governor Shaktikanta Das recently saying that private cryptocurrencies remain a risk for financial stability.
Hareesh, like many other gold pundits, says it is naive to believe that a metal that sustained human interest for two millennia would suddenly lose allure to a much volatile cryptocurrency.
Should you invest in crypto? Let’s hear from the experts
“Cryptocurrencies have delivered better returns than other asset classes, but one must not lose sight of high risk and sharp volatility. Gold has given steady returns and is the ultimate currency of central banks. So, traders can use Bitcoin for speculation and short-term gain,” according to Renisha Chainani, Head of Research, Augmont Gold for All.
Hareesh says that the yellow metal should ideally be not more than 15% in one’s investment portfolio as it has established itself as a safe haven, a hedge against inflation, and a preserver of value.
Sen explained, Gold and cryptocurrency are not strictly comparable investments as the former is a historic, proven, and known one while the latter is a not-really-proven one with endless possibilities both on the upside (gains) and downside (losses).
“For conservative investors, gold is better and for those who prefer the adrenaline rush of a roller coaster, cryptocurrency is worth trying out,” he added.
