 "Gold rebounds from 3-year low: Is it still a good time to invest?")
Gold prices rebounded on June 27 from its three-month lows as geopolitical concerns surrounding Russia brought safe haven buying in the metal. Meanwhile, hawkish interest rate outlook in western economies restricted its further gains.
Why has gold rebounded?
Why has gold rebounded?
"Gold continue to inch higher, amidst a weaker dollar and uncertainty regarding Russia's internal fight which happened over the weekend, although prices hovered close to three-month lows as traders assessed prospects of more interest rate hikes by the U.S. Federal Reserve," said Manav Modi, Analyst, Commodity and Currencies, Motilal Osatwal.
Heavily armed Russian mercenaries withdrew from the southern Russian city of Rostov on Sunday, while authorities were still investigating the mercenary leader whose weekend mutiny appeared to be a major threat to the President Vladimir Putin's 23-year-old rule.
"Market participants adopted a more cautious approach as major central banks continue fighting inflation with rate hikes at the time most were believed to be already on pause and preparing to move in the opposite direction. Investors will get a fresh update on the possible future path of interest rates later this week, as US PCE price index is scheduled to release, as it is the Federal Reserve’s preferred inflation gauge and is still far away from Fed's target of 2%," said Modi.
Motilal expects the broader trend on COMEX to be in the range of $1910- 1940 and on domestic front, prices could hover in the range of Rs 58,200 – 58,850.
"Spot gold is likely to hold the support near $1910 and rise back towards $1940 levels amid forecast of weaker set of economic numbers from US. Further retreat in US dollar and treasury yields could provide some support to the precious metals. However, expectation of two more rate hikes in this year by US Fed to tame stubborn inflation may check the gains in bullion prices," said Raj Deepak Singh, research analyst at ICICI Securities.
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"Yesterday gold prices closed higher by 0.18 per cent, at 58403 levels on the back safe-haven demand due to political unrest in Russia. Weak US business sentiment data were also positive for the gold as it was negative for the dollar index. FOMC also indicates that the target of 2% inflation is still far and will take time to achieve. In the international market, it is trading at $1927 levels per ounce," said Anuj Gupta, Vice President of IIFL Securities.
ICICI Securities expects MCX Gold prices to take support near Rs 58,000 and rise towards Rs 58,650 levels.
In Mumbai, 24-carat 999 gold bar of 10 grams is trading at Rs 5,865 without GST.
Should you buy at this level?
IIFL sees technically strong support at 58000 and 57700 levels, and resistance at 58700 and 59000 levels. Today, one can buy around 58000-58100 levels with a stop loss of 57700 and for the target of 58700 to 58900 levels, said Gupta.
"Gold is in a bearish phase now, in our view this is the right time to invest in gold to reap medium to long-term benefits. The yellow metal has strong support at the $1900/oz level. So at a macro level, there is limited downside risk to investment in gold. Largely, we are at the peak of the current interest rate cycle. With the easing in sight from early Q1CY24, gold prices are likely to witness some strength," said Colin Shah, MD, Kama Jewelry.
Also Read: What is digital gold and what are pros and cons of investing in it?
What should you buy? Physical or digital gold?
Aditi Mittal, co founder of IndiaBonds.com said that while gold is a crucial investment option because of their unequalled love for physical assets, investors have also turned to digital gold, such as soverign gold funds, gold mutual funds, gold Exchange Traded Funds for greater yields. When it comes to return, liquidity, ease of investment, and taxation, there are significant variations between them. Each instrument has a different price, and the SGB has a slight price lag since the government sets the price for each tranche, which occasionally may be higher or lower than the actual price of gold. In contrast, before the daily cutoff time of 3 pm, prices for gold funds or ETFs are decided.
"SGBBs have no fund managment cost because the government issues them. Nevertheless, there can be transaction fees or brokerage costs incurred during the purchasing and selling process. Similarly, Gold mutual funds levy an expense ratio that pays for fund management fees, administrative expenses, and other charges. Different mutual fund schemes have different expense ratios. These funds typically have cost ratios of between 1% and 2%. furthermore, even Gold ETFs have an expense ratio but that is lower than gold mutual funds covering operational costs and fund management fees. From return standpoint, the total return on SGBs comprises of the fixed interest rate @2.5 % paid semi annually, and the capital appreciation based on the prevailing gold prices," said Mittal.
Similarly, performance of underlying assets which is actively influenced by the gold pricing determines the total return of the gold mutual fund. While the returns are directly linked to the performance of the overall market, the expense ratio of 1% -2% of Gold Mutual fund is generally borne by the investors, which affects the net return on the investment. The return on Gold ETFs is directly linked to market performance based on the price movement of gold. The expense ratio is also borne by investor but compared to Gold funds the ratio in lower between 0.2%-0.5%.
"SGBs are an excellent choice overall for investors searching for a low-cost, government-backed investment with tax-free returns until maturity if applied in primary issue announced from time to time However, gold ETFs and funds might be considered as a viable option for investors who prefer more liquidity. For investors who desire the freedom to withdraw their money at any time, automatically make small investments through SIPs, or make large investments whenever they like, gold mutual funds are a great option. Additionally, investors who want the most liquidity and who feel comfortable trading on stock exchanges should consider gold ETFs," said Mittal.
How much gold should you buy?
“Allocation to gold may be kept at 5 % to 10%. Gold prices may be supported by economic sluggishness and related uncertainties in the immediate term. US interest rate trajectory will be the single most influence on gold prices along with Dollar Index movements. At any time a weaker Dollar with sustain a rise in gold prices. SGB is an excellent avenue as it provides a coupon in addition to the prospects of price appreciation. Gold funds and ETFs are good for capturing the price upside for shorter horizons as it facilitates profit booking," said Dr. Joseph Thomas, Head Of Research, Emkay Wealth Management.
Gold is one of the safest assets class and works as a hedge against inflation. Hence, it is always good to diversify 5-10% investments in gold. If someone is considering investing in gold, here is a an approach, as explained by Ajinkya Kulkarni, Co-Founder and CEO, Wint Wealth.
1. When to start: A retail investor can not time the market. Thus, a better way is to stick to your allocation target (5-10%) and not sway with market highs and lows.
2. Physical vs Digital gold: Physical gold attracts 3% GST on the purchase, which is as good as a 3% capital loss, physical gold is only advisable if we need it for jewellery or other consumption.
3.Gold ETFs/ Mutual funds: Gold ETFs have no GST, and the price discovery is highly transparent. If an investor has a Demat, ETFs are better. If not, gold mutual funds are the way to go.
4. Sovereign Gold Bonds (SGBs): SGBs have a lock-in period of 5 years. If an investor plans to stay invested for the long run (5+ years), SGBs are the best gold investment, giving an additional 2.5% return per year. Moreover, if held for eight years, the gains are tax-free. Also, one can take a loan against SGBs for any short-term requirement.