How gold beat equities by 17%, became investors' favourite

With equity investments delivering negligible returns over the past year, gold in all its forms is attracting investors. Besides jewellery, coins and bars, investors are buying gold exchange-traded funds (ETFs), gold bonds and even digital gold. It makes sense because gold gained almost 18% year-on-year (end March 2023) while equities gave a return of about 1% in the same period. Gold prices are now hovering at ₹62,000 per 10 grams, compared with ₹52,000- ₹53,000 a year ago. So, what led to the price jump? Gold is believed to be a safe bet in times of economic uncertainty. Russia’s invasion of Ukraine in 2022, rising inflation in the West and the US Federal Reserve’s rate hikes, have therefore, pushed up demand for gold, driving prices upwards. !function(){"use strict";window.addEventListener("message",(function(a){if(void 0!==a.data["datawrapper-height"]){var e=document.querySelectorAll("iframe");for(var t in a.data["datawrapper-height"])for(var r=0;r Pune-based businessman Amit Gupta says: “Indian markets have been so volatile over the last couple of months that returns on investments have become unpredictable. I have now moved some money into gold exchange-traded funds and bonds, which I consider relatively safe.” Shweta Verma, a marketing professional from Delhi, says she’s exploring all options from physical gold coins to gold funds, and will invest once prices stabilise. Fund managers are also advising some allocation to gold as a hedge against market volatility. “The markets are still expecting the [US] Federal Reserve to cut rates later this year. A rate cut will be preceded by deteriorating economic conditions or financial instability, making the investment case for holding portfolio diversifiers like gold strong,” says Chirag Mehta, chief investment officer, and Ghazal Jain, fund manager at Quantum AMC in a note. Suresh Sadagopan, managing director and principal officer at Ladder7 Wealth Planners, says, “Moving out of international equity is a tactical call. I am advising clients to invest at least 5-10% of their overall portfolio in gold. These investments could be in sovereign gold bonds, gold ETFs and gold funds.” !function(){"use strict";window.addEventListener("message",(function(a){if(void 0!==a.data["datawrapper-height"]){var e=document.querySelectorAll("iframe");for(var t in a.data["datawrapper-height"])for(var r=0;r Physical and digital assets As interest has revived in physical gold, Mumbai’s gold hub, Zaveri Bazaar, is seeing hectic buying in anticipation of higher prices due to geopolitical uncertainty and fears of a recession in the West. “Gold prices are undoubtedly high, but they will be higher still in the next few months. Customers want us to tell them the right time to buy. My answer is now,” says a Zaveri Bazaar jeweller who did not want to be named. Some market watchers say gold could hit ₹68,000 per 10g by next year. Data from the Association of Mutual Funds in India (AMFI) shows that investors are now more inclined to gold-related investment instruments. For example, folio numbers in gold ETFs had surged to almost 47 lakh at the end of March 2023, as against 42.4 lakh a year earlier. Gold ETFs are units representing physical gold in paper or dematerialised form. And while inflows in gold ETFs dropped 74% year-on-year to ₹653 crore in 2022- 23, analysts say this is due to profit booking in this asset class. “Whenever the price of gold is high, investors cash out, but once it stabilises, we can expect more investment in gold ETFs. We expect its price to be in the range of ₹66,000 per 10g by Diwali,” says Jateen Trivedi, vice-president of research at LKP Securities, a broking house. Sovereign gold bonds popular Since they yield 2.5% interest annually, sovereign gold bonds (SGBs) are a popular investment option. “Many of my clients have of late diverted some funds to gold assets. The popular go-to option has been sovereign gold bonds over physical gold as they are pretty easy to liquidate too,” portfolio manager Paresh Naryani says.Even digital gold is finding many takers. For instance, transactions have doubled at SafeGold, a digital platform that allows customers to buy, sell and receive vaulted gold in small amounts. Their customer base has grown from 15.6mn in March 2022, to 33mn in March 2023, says Rhea Chaterji, head of consumer business at SafeGold.“Overall, our revenues for FY23 are nearly ₹ 4,500 crore, compared with ₹ 2,437 crore in FY22,” she adds.Will gold price rise further?Gold has an inverse relationship with the US dollar. When the dollar dips in value, gold prices rise, and this serves as a hedge for central banks to protect their reserves during volatile market conditions.Central banks all over the world have been lapping up gold at the moment. Data from the World Gold Council shows that four central banks – Monetary Authority of Singapore, People’s Bank of China, Turkiye’s Central Bank and Reserve Bank of India – accounted for most of the gold buying during January-March 2023. !function(){"use strict";window.addEventListener("message",(function(a){if(void 0!==a.data["datawrapper-height"]){var e=document.querySelectorAll("iframe");for(var t in a.data["datawrapper-height"])for(var r=0;r World Gold Council’s senior markets analyst Louise Street sees this buying by central banks as the cornerstone of gold demand throughout 2023. However, there are other analysts who say there is some stability in macroeconomic events now and gold prices would rise further only if there is a major global catalyst.According to Navneet Damani, senior vice-president, research commodities and currency at Motilal Oswal Financial Services, “On the macro front, growth has started to stabilise, inflation is now cooling off, and rates are likely to plateau.”