High gold prices have dulled the excitement around a Hindu festival

The more the merrier.
The more the merrier.
Image: REUTERS/Rupak De Chowdhuri
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Gold-crazy Indians don’t really need a reason to buy the precious metal. But those looking for one, are likely to head to their local jeweller today (May 07) on the occasion of Akshaya Tritiya—considered auspicious for buying gold.

Buyer interest this year, though, is unlikely to match the near frantic levels seen in the past few years, believe experts. They cite high prices, tepid returns, and changing investor dynamics as reasons for the waning interest in physical gold.

At least some of the more financially literate investors, therefore, are shifting to digital gold by investing in gold mutual funds or gold exchange traded funds (ETFs) that are sold on the stock exchange. In recent times, mobile payment companies like Paytm and PhonePe have also made buying digital gold as simple as paying for food.

But despite the alternatives, and the stratospheric prices touched by physical gold, demand for gold jewellery was at a four-year high in the first quarter of 2019 at 125.4 tonnes, according to the World Gold Council.

Should you buy?

Gold in Mumbai was trading at Rs31,700/10 grams today (May 07), in the early hours. This is marginally off the over Rs33,000/10grams touched in the last few weeks. For some, even this minor dip may be seen as an opportunity to buy.

Given the high prices, experts recommend buying only if it is intended for personal use ahead of the wedding season. “From the point of view of investments buying right now does not make any sense,” said Suresh Sadagopan, founder of Ladder7 Financial Advisories, a financial planning firm. “There is no compelling reason to buy gold at this price point.”

Another important factor that is taking the sheen off gold in current times is the fact that in the last 10 years the yellow metal has given returns of only 8% per annum, said Naveent Damani, analyst at Motilal Oswal, a domestic brokerage house.

If one compares that with other financial products such as equity or debt, then in the last few years, it has not scored well on returns, which has been keeping investors at bay. Therefore, it is unlikely that people who are looking at it from an investment perspective will dive into it right now.

“We don’t see too much of a spike in prices in the near-term until something out of the ordinary happens which means returns will continue to be tepid,” said Naveen Mathur, director-commodities, Anand Rathi. “I am not averse to it but I am definitely not bullish on it either.”

How to buy?

Financial planners, however, suggest that investors should allocate 5-10% of their portfolio to gold. Despite the relatively low returns in the last decade, the yellow metal is still a good way to diversify one’s investment portfolio, they say.

“This doesn’t mean you have to hold it as physical gold, which is not only cumbersome (to store) but also attracts wealth tax, unlike digital gold,” added Sadagopan.

Considering that digital gold mimics the price of physical gold, it will be wiser to opt for the former, through gold ETFs or gold mutual funds. In fact, financial planners note that it may be a better option for retail investors to invest small amounts every month in these financial assets through systematic investment plans (SIPs).

This is why mobile-based payment platforms such as PhonePe offer the product. “Consumers today are extremely tech-savvy, increasingly choosing the convenience of online shopping and we are seeing a similar trend in the gold category as well,” said Priya Narasimhan, head-bill pay, recharge, gold and revenue categories, PhonePe.

Another thing to note is that in order to get the best out of gold investments one needs to hold it for a longer duration similar to real estate, added Sadagopan.