Not too late to join the gold rush, says Angel Broking

Even with gold trading at Rs 56,200 per 10 grammes on Friday, it is still not too late to join the gold rush party, says Prathamesh Mallya, AVP  Research, Non-Agri Commodities & Currencies, Angel Broking.

100% Returns in 5 Years

An investor who bought gold on  January 1, 2016, at Rs 25,042 would have doubled his investment on January 1, 2021 when the prices touched Rs 50,040 (MCX).

The returns last year alone have been the highest across all regulated asset classes last year, as investors migrated from equities to the safe haven of gold as markets tumbled in the wake of the pandemic.

“When global economy is uncertain, people look at investing in a safe haven and that’s what drove the gold prices in 2020,” said Mallya.

Gold & equity: Opposite Directions?

In the last 10 years, the below graph suggests that Gold moves in opposite directions to the equity market. In a timeframe where NSE’s benchmark index Nifty has gone up, gold prices have moved down in comparison – while both have maintained an upward trajectory.

But that’s perhaps not always true. “This perception would have been in a sense where everything else would have been normal, but this past year has seen that equity has risen and in the same period, gold prices have also risen,” Mallya added.

More Correction Underway?

Gold has corrected almost 12% after testing an all-time high of Rs 57,002/10 grammes in August 2020.  “The recent correction is because of optimism in vaccine being rolled out in the US and UK. For those who missed the rally, this is a good time to buy,” said Mallya.

Buy or Wait? How & How Much?

For investors, timing any asset including gold is difficult and runs the risk of missing the rally. Mallya says Sovereign Gold Bonds for long-term investors is a better bet than Gold ETF. The former is backed by the government. Digital Gold is another possible tool to explore for the digitally savvy.

“In normal circumstances, 10% is an ideal allocation for gold. But in 2021 with uncertainty over the pandemic and vaccine, gold allocation can be upped to 15% of the total portfolio,” Mallya added