Gold is one of the best performing assets at the moment. The price has seen an increase of more than 50 percent in the last one year. It crossed the $4000 mark. But what to do now? Is this the time to invest in gold or to withdraw money and earn profits? This question is arising in the mind of every investor. Vikram Dhawan, Head of Commodities and Fund Manager, Nippon India Mutual Fund, answered questions regarding gold’s rise and outlook. The fund house runs India’s largest gold ETF with an AUM of over Rs 30,000 crore…
In the last one year, gold has given more than 50 percent returns. Do you think it is time for investors to be cautious, or is there still scope for bullishness?
We are seeing a global change in the stance of both investors and central banks. For the last several years, central banks have been shifting from dollars to investing in gold. This trend is now visible among private investors as well. For example, gold and silver constitute less than 2 percent of the total assets under management (AUM) in the Indian mutual fund ecosystem. Even at the global level, till the middle of last year, the investment in gold by many institutional investors was negligible.
This phase of comeback in gold is still going on. And until this is completed, we may see strength in the gold markets. Of course, nothing goes up in a straight line. There will be phases of consolidation and correction but the underlying trend will remain positive in the near future.
Have you seen a surge in gold ETF buying? How were the months of September and October for you?
If we look at the trend, investment in gold ETFs in 2024 will be three to four times more than in 2023. Talking about 2025, only 6 months have passed in the current financial year. But the investments so far show that this year may again have 2 to 3 times more investment than 2024. So yes, we are seeing a sharp increase in investment.
What is your advice to investors who missed out on this rally? Is it still the right time to invest in gold, or should they wait for the fall?
Asset allocation and multi-asset investing are still new concepts in India. If you compare with Europe or America, investors there are diversified and invest more in more than one asset. In India, such funds still constitute only about 2-3% of total AUM. As portfolios grow and investor awareness increases, the focus shifts from pure or assured returns to risk-adjusted or sustainable returns, and this is where gold plays an important role. Therefore, for those who have missed the benefit of the previous rally, gold still remains a good option as a portfolio diversifier.
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How do you think interest rate cuts by the US Fed and ongoing geopolitical tensions will impact gold prices in the next few months?
Interestingly, traditional macro factors like the US dollar, bond yields or Fed interest rates have become less influential in this gold rally. Before the 2008 financial crisis, prices in a bull market were driven primarily by macro trades and speculative flows. But this time, the key players are long term investors. However, interest rate cuts in the US still matter. America is facing a fiscal deficit of about 7%. This was last seen during the Covid-19 or 2008 crisis. If both fiscal and monetary policies remain accommodative, this would be a good thing for gold and less good for the dollar.
Talking about silver, in the last one year it has increased more than gold. In terms of valuation, which looks more attractive between gold and silver?
Gold is a great hedge given global debt. Total sovereign debt has now crossed $100 trillion. Total global debt is approximately $350 trillion, which is approximately 3.5 times global GDP. Being free from credit risk, gold acts as an antidote to this increasing debt burden. Silver, on the other hand, is driven by industrial demand, especially demand from the renewable energy sector. About 15-20 percent of global silver demand now comes from solar energy applications. So, while gold’s momentum is macroeconomic, silver’s is structural as it is tied to green energy and climate change.
Today investors have many options to invest in gold – SGB, Digital Gold, Mutual Fund FoF and ETFs. How should they choose?
It depends on your purpose. If you are focusing on wealth creation through capital markets, then gold ETF is an option. These are regulated, liquid and safe and can be invested in through investment apps. If you prefer to buy gold for consumption, such as buying gold for jewelery or gifting, then physical gold, Sovereign Gold Bond (SGB) or digital gold may be the right option for you.
However, keep in mind that sovereign gold bonds and digital gold are less liquid. Therefore, they may not provide effective protection during market stress, especially for large portfolios. So, choose based on your financial goals.
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