With equities looking fully valued or overvalued, wealth managers are setting their eyes on the yellow metal.
Though traditionally always an alternative investment option, gold is witnessing increasing allocations in portfolios of HNIs and UHNIs (ultra high networth individuals). The recent rally in gold prices does not seem to have deterred them from betting on the precious metal as they expect it to touch historic highs.
Gold prices have moved up from Rs 11,785 per 10g to Rs 16,615 in a year, a 41 per cent annualised return. According to Valueresearch Online, Gold ETFs (exchange traded funds) have posted returns of 42.87 per cent in the past one year. While the Sensex and the Nifty have given returns of 56 and 55 per cent, respectively, equities are much more risky than gold, say experts.
“We have been advising clients to invest in gold since the last one year. But, yes, the interest has tremendously shot up during the last few days. The allocations have certainly gone up from less than 1 per cent to 5 per cent of our clients’ portfolio. We are positive on the commodity, mainly for two reasons — one, the dollar depreciation and, second, the sword of inflation hanging over us. It is an asset class which can give you 10-11 per stable returns annually. Most of our clients have been investing through gold ETFs. There are gold mining funds also, but we are not recommending these, as they carry market risk,” said Rajesh Saluja, CEO, ASK Investment Advisors.
The surge in interest is also reflected in volumes of gold ETFs, which have been rising on the National Stock Exchange. Benchmark’s Goldbees, the most heavily traded gold ETF, saw volumes moving up to 33,286 units on Wednesday, a sharp jump of 23 per cent from 26,937 units in September. Similarly, volumes in UTI’s Goldshare increased from 3,283 units to 5,292 units.
Kaustav Majumdar, Executive Director, SMC Wealth, said: “The US is still not out of the woods and there are growing concerns on its economy, making investors all the more bullish on yellow metal. Investors are seeing reasonably good returns from gold. There is a huge amount of China buying and that is expected to push up the prices further. Rough estimates suggest that gold is poised to rise about 30 per cent even from this level. We are strongly recommending it to our clients. It is currently accounting for 10-15 per cent of portfolio allocation for HNIs. We have observed that HNIs are more interested in buying gold bars.”
Recently, the Reserve Bank of India bought 200 tonnes of gold from the International Monetary Fund for $6.7 billion. It is feared that with the pumping in of cash by the Fed to address last year’s financial crisis, the dollar may plunge yet more in future. It is already down 7 per cent against the euro and 11 per cent against the yen in the past six months. Wealth managers expect gold to touch $1,500-levels from the current $1,100 in the next six to eight months.
Nipun Mehta, head of private banking at Societe Generale, said: “There has been a fair amount of interest in gold, despite the fact that it has touched new highs. Some of our clients have been increasing allocations. There is a lot of demand-supply mismatch for this commodity and there is a lot of institutional buying happening, pushing up prices.”
“The enquiries for investing in gold ETFs have certainly increased. For our clients, we have said they must hold it for three to four years for decent returns. Having said that, alloction to gold has been going up compared to earlier, when people where more or less passive about the commodity”, said Rupesh Nagda, Head- Products at Alchemy Wealth Management.
