The Goldrush started on March 23rd 2020 is continuing and we see the gold prices going up up and above since then. Most of us don’t understand the reason for accelerating price growth and also not sure if we have to rush to buy or wait for prices to come down.
What is making gold prices to go up?
In the process of setting things right, the federal banks of many countries have reduced the interest rates making it to zero or near to zero per cent. In countries like Japan, Switzerland and Denmark it is even negative and people are literally fearing about banks charging fees for depositing money. Also, the currency is being printed like never before to pump in the liquidity. This led to falling in Bond yields making the bond investments unattractive.
Usually when there is an economic downturn and uncertainty in all the investment markets Gold is chosen as a safe investment option to hedge the risk and inflation.
Though the retail demand in the form of jewellery has come down drastically, the investment demand is increasing. Many institutional investors and hedge funds are investing in gold. The ETFs has seen a huge spike in the investments compared to the same period last year.
With reference to the above chart, the gold price on 18th March 2020 was at $1,477.3/ Ounce and on 6th August 2020, it is at $2,050/Ounce nearly a 39% increase in price in this short term.
What is the way forward ?
In spite of businesses restarting now across the globe, the aftermath effect of COVID 19, the economic disruption, slow global growth, increasing unemployment, geopolitical issues, US elections, Dollar weakening, etc seems to continue for quite some time. Which means, the Gold will continue to glitter until these issues are sorted. This up-word movement in gold prices may continue until 2021. We may get to see a 20 to 25% reaching $2,500/ ounce which may come around Rs. 65,000/ 10 grams.
Is it right time to buy ?
You want to buy Jewellery for an upcoming occasion?
For Indians, gold is a part of our customs, for any and every occasion starting from cradle function, marriage, religious functions we have the custom to buy gold. If there is any need like this in the family, any time would be the right time and any price would be the right price.
But, if you have a few months for the occasion, please have a check on gold prices. In long term upward movements there will be small corrections once in a while as the investors book interim profits. You can take this opportunity and buy-in dips.
You are looking for investment purpose ?
Buying jewellery / physical gold (Coins and Bars) for investment purpose is a big NO. Because.
- The sentiment towards the ornaments will not let you sell.
- The making charges, wastage, tax and other related costs will eat away your margins.
- Safety is always a concern.
The best way to invest is through Gold Exchange Traded Funds. Through ETFs, you can buy from 1 gram to any amount of gold. The investment can be done in small amounts as per convenience. The prices are benchmarked to the physical gold prices. Hence you will be buying at almost actual prices, unlike jewellery.
You can buy them through your trading account and can be held in Demat account like shares. Hence the safety is taken care.
Below are few Gold ETFs you can have a look at
- Nippon India ETF Gold BeES
- Aditya Birla SL Gold ETF
- Invesco India Gold ETF
- SBI-ETF Gold
- Kotak Gold ETF
Now the Gold prices are already at an all-time high. Usually, after a good increase in prices, investors look at booking interim profits which can lead to a fall in price. You can take advantage of these falls and invest in instalments. It is never advisable to make investments with borrowed money and take a risk which does not suit your personal financial profile.
The returns on Gold seems quite glittering for now. Please be informed that, when the uncertainty around settles down and world economic condition gets better, there is every chance for the Gold prices to come down if not to the original levels where it started but definitely a good correction is expected.