Gold, as an investment asset class, has been a stunning and consistent performer over the last one decade. In absolute terms, the precious yellow metal has rewarded investors with a whopping seven times return during the period. It was only in 2012 that its pace of appreciation remained subdued but yet it managed a double-digit gain.
So, what does 2013 hold for gold? Will the precious commodity be able to repeat its magic of rewarding investors with yet another double-digit return; something, it has been doing for last consecutive eight years with returns ranging between 12 and 32%?
"It looks difficult," say majority of the market participants. At a time when sentiments in equity are improving, at least over the last few months, and optimism is running high of hitting new highs in stock indices, experts say gold is likely to take a back seat.
Last year, when Indian benchmark indices clocked over 25% gains; gold could manage a little over 12% appreciation. On the contrary, prior to the previous year gains stood at 32% or Rs 6,605 on a 10 gram of standard gold.
Ambareesh Baliga, independent market expert, says, "With inflation getting controlled and stable currency, gold wont be able to continue its bull run. I believe, returns from gold this year could be flat to negative." In CY2012, domestic price of a 10 gram standard gold rose from Rs 27,190 to Rs 30,490.
| Standard Gold | Sensex | ||||
| Date | Rs 10 GM | Return (%) | Date | Close | Return (%) |
| 12/30/2000 | 4550.00 | 0.44 | 12/29/2000 | 3972.12 | -20.65 |
| 12/31/2001 | 4600.00 | 1.10 | 12/31/2001 | 3262.33 | -17.87 |
| 12/31/2002 | 5580.00 | 21.30 | 12/31/2002 | 3377.28 | 3.52 |
| 12/31/2003 | 6210.00 | 11.29 | 12/31/2003 | 5838.96 | 72.89 |
| 12/31/2004 | 6305.00 | 1.53 | 12/31/2004 | 6602.69 | 13.08 |
| 12/31/2005 | 7600.00 | 20.54 | 12/30/2005 | 9397.93 | 42.33 |
| 12/30/2006 | 9170.00 | 20.66 | 11/30/2006 | 13696.31 | 45.74 |
| 12/31/2007 | 10695.00 | 16.63 | 12/31/2007 | 20286.99 | 48.12 |
| 12/31/2008 | 13435.00 | 25.62 | 12/31/2008 | 9647.31 | -52.45 |
| 12/31/2009 | 16690.00 | 24.23 | 12/31/2009 | 17464.81 | 81.03 |
| 12/31/2010 | 20585.00 | 23.34 | 12/31/2010 | 20509.09 | 17.43 |
| 12/31/2011 | 27190.00 | 32.09 | 12/30/2011 | 15454.92 | -24.64 |
| 12/31/2012 | 30490.00 | 12.14 | 12/31/2012 | 19426.71 | 25.70 |
| Compiled by BS Research Bureau | |||||
According to Sadanand Shetty, senior fund manager at Taurus Asset Management, "Big risk headwinds are easing off globally. Currencies of troubled nations in Europe have shown definite improvement. Amid this, I do not see a repeat of earlier rallies in gold. In terms of returns, the yellow metal will take a back seat."
At a time when base of gold price has steeply increased, further fast appreciation from hereon is unlikely say experts. Though they add that gold will not lose charm of domestic investors and in terms of asset allocation it will remain in a part of their portfolio.
"The year 2013 looks to be a year of uncertainty and volatility for gold. Investors will pile up their holding in case other asset classes including real estate, fixed deposits and equities scenario would worsen. For this, the withdrawal of quantitative easing (QE) in the US would be interesting to watch out," says Gnanasekar Thiagarajan, director at Commtrendz Research. However, he is quick to add that if
QE continues and EU economies signal recovery, then the price of gold would decline which would discourage investors to put in additional money in gold.
It holds true if declining inflows in Gold exchange-traded funds is any indication. In CY2012, Indian mutual fund industry witnessed a sharp decline in money flowing into gold funds. As per the statistics available from industry body Association of Mutual Funds in India (Amfi), net inflows in Gold ETFs got more than halved to Rs 1,826 crore in 2012 against Rs 4,046 crore in the previous year. It was first time in last five years that inflows in gold funds actually declined that too so sharply.
| NET INFLOWS IN GOLD ETFs DURING LAST FIVE YEARS | |
| Year | Net Inflows (Rs in crore) |
Industry experts attributed this to falling appreciation rate of gold prices amid assured risk-free returns from debt funds and equities outperforming expectations. On top of it, government's measures to curb gold imports to manage current account deficit also did not go well with investors.
"Gold will keep on appreciating but not with that spectacular rally as base has gone up steeply. The year saw investors' preference for long-term debt funds," adds N Sethuram, chief executive officer of Daiwa Mutual Fund.
Investors' base in gold funds has risen over four-folds between 2008-09 and 2011-12. Interestingly, number of folios in Gold ETFs were almost doubling in FY10 and FY11. Even in the previous financial year, folios increased almost 50%. However, so far in current fiscal (April-December), growth in investors' base stands at less than 20%. "If gold gives negative return this year, investors would exit and gold ETFs will be first to take a hit," explains Baliga.
| STEEP RISE IN FOLIOS OF GOLD ETFs | |
| Financial Year (FY) | Number of folios |
Source : Securities and Exchange Board of India (Sebi)
So, would inflows coming to Gold would shift to equities? Sector's executives partially agree but rule out possibility of investors giving a complete thumbs down to gold. Given the fact that equity is a highly risky asset class, risk appetite has not improved, they say. According to one of the fund managers, "People are talking about benchmark indices gaining around 25% in next two years, which means around 12.5% a year. Now, when debt funds are giving 9-10% risk-free assured returns, why would investors risk their money just for an additional 2.5% gains, which too is not certain." He wished not to be named.
Gilt funds, the category which primarily invest in Government Securities (G-Sec), are already back on investors' radar. With expectations of interest rate cuts likely this year, there has been robust net inflows in Gilt funds during the December quarter. Around Rs 3,000 crore of fresh money has been pumped into Gilt funds during the period - not seen for years.