Gold continues to glitter with prices over 4-month high
On MCX, gold rose 0.24% to over a four-month high of Rs 48,519 per 10 gram as weaker US dollar and growing inflationary pressures continue to support gold prices
Gold shines bright as prices continued to inch higher in the Indian markets today, tracking positive global cues.
On MCX, gold rose 0.24% to over a four-month high of Rs 48,519 per 10 gram as weaker US dollar and growing inflationary pressures continue to support gold prices.
Experts point out how a slide in cryptocurrencies further lifted the yellow metal’s appeal. In India, a depreciating rupee amid the second wave of Covid-19 provided further upside to the local gold price.
Gold prices on a rise despite low retail demand
Gold prices rose 5.9% higher in the month of April and have continued their surge in May even as retail demand is getting stifled by the second wave of the pandemic. According to Mukesh Kumar, Senior Analyst, India, World Gold Council, “Consumer confidence dipped during the last two weeks of April as Covid cases surged and states announced more restrictions and wedding postponements increased.”
“Looking at market sentiment in May, retail demand on Akshaya Tritiya (AT) – the major gold buying festival, which fell this year on 14 May – remained muted due to store closures. Sales found marginal support through retailers’ digital/omni-channel strategies and demand for digital gold remained strong,” he added.
Gold ETFs continue to attract inflows
As per data released by Morningstar, Gold saving funds and gold exchange-traded funds (ETFs) witnessed net inflows of Rs 864 crore even in April amid an uncertain economic environment in the wake of the second wave of Covid-19. Gold saving funds and gold ETFs have seen net inflow to the tune of Rs 184 crore and Rs 680 crore, respectively in April.
As per the recent AMFI data, in March 2021, net investments in gold ETF schemes totalled Rs 662 crore, up from Rs 491 crore the previous month.
In fact, the uncertainty around the pandemic had led investors to infuse Rs 6,900 crore in gold exchange-traded funds (ETFs) in FY21, which is over four times higher than the preceding fiscal.
Himanshu Srivastava, associate director, Morningstar India was quoted in media reports on the reasons behind the strong flows saying, “The sharp and intense surge in coronavirus cases this year has fanned hopes that, as an asset class, gold may continue to perform well in the current environment. This has kept investors interest intact in the asset class”
Gold imports remain steady
Despite the subdued retail demand, Indian official gold imports in April were above the 10-year monthly average. As per the World Gold Council, Indian official gold imports totalled 110 tonnes in April 2021 compared to a negligible 50kgs of imports in April 2020. Official imports in April were also 71% higher than the 10-year monthly average imports of 65.5 tonnes and this was on the back of purchases ahead of Akshaya Tritiya.
Sovereign Gold Bonds
The second tranche of the sovereign gold bond scheme for 2021-22 opened for subscription today. The window will remain open till May 28. The issue comes soon after the first tranche but is priced slightly higher. Investors who intend to subscribe to the scheme can bid for a minimum of 1 gm of gold at Rs 4,842 per gram against Rs 4,777 per gram for the previous tranche. There will be a Rs 50 discount for prospective investors that will bid online.
The government has decided to issue the bonds in six tranches from May 2021 to September 2021.
This will be followed by Series III (May 31-June 4), Series IV (July 12-16), Series V (August 9-13) and Series VI (August 30-September 3).
Sovereign Gold Bonds have an added advantage over other Gold investment options by way of the annual interest rate of 2.5% over an above the rate appreciation. So you get the double benefit of price appreciation in the long run as well as interest in the short term. Liquidity, however, can be an issue if you want to exit by selling the units on stock exchanges before the 5th year.
Anuj Gupta, vice president (VP), Commodity and Currency Research at IIFL Securities said, “One should invest in SGBs as this is a great product to invest in gold and by investing in SGB, investors can get the benefit of price appreciation as well as interest.”
Gold Outlook
On the outlook on gold prices and demand Mukesh Kumar, senior analyst, India, WGC said, “If this downward trend (in Covid cases) continues, lockdowns will likely ease and non-essential businesses will re-open, bolstering retail demand.”