Invest in gold
With gold prices reaching a historic high of Rs 73,000 per 10 grams this week, retail investors are advised by experts to consider investing in the metal gradually. The metal has emerged as the top-performing asset class this year and is expected to remain attractive as a hedge against increasing geopolitical uncertainty.
Since January, bar prices have surged by 16% in rupee terms, far outpacing the less than 1% increase seen in the Sensex. Global gold prices have also climbed, driven by factors such as conflicts in West Asia, volatility in the equity market, and robust purchasing by central banks, including those of China, India, and Russia. Moreover, gold prices typically benefit from a decrease in bond yields, meaning any further weakening in yields is likely to positively influence gold prices.
The yellow metal may experience significant appreciation if the Federal Reserve is compelled to implement easing measures due to growth setbacks in the US, or if geopolitical tensions escalate further. According to experts, market sentiments suggest that rate cuts in the US are being factored in, considering the challenges faced by the Fed, such as persistent inflation and escalating US government debt.
However, if the Federal Reserve fails to meet market expectations regarding the extent or timing of rate cuts, gold could undergo some consolidation. Nevertheless, the downside potential is mitigated by factors such as peaking interest rates, geopolitical tensions, and continued gold purchases by central banks.
Investing in gold serves as a reliable strategy for portfolio diversification and offers a secure store of value in the long run. A recent report by Axis Securities highlights that given the prevailing macroeconomic conditions, gold will remain an attractive asset class and will continue to attract investment as a proven hedge against other asset classes. The report recommends that investors adopt a strategy of buying during market dips.
How to Invest
Individuals have the option to invest in aurum through sovereign gold bonds. They can either invest in these bonds during the primary issuance or acquire them from the secondary market, potentially at a discounted price. Since there is relatively low demand for these bonds in the secondary market, some sellers may offer them at a reduced rate.
Investing in Sovereign Gold Bonds (SGBs) offers several benefits. Investors receive a fixed interest rate of 2.5% per annum, paid out semi-annually. This effectively amounts to a 1.25% interest rate for each payment, which is subject to taxation based on the investor’s income tax bracket. The principal investment in SGBs is backed by a government guarantee, providing investors with security. While the minimum holding period for SGBs is eight years, investors have the flexibility to sell them after five years.
