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Indian households beat best of fund managers as gold price soars; safe haven demand jumps amid market volatility

21 Mar , 2023   By : Monika Singh

Indian households beat best of fund managers as gold price soars; safe haven demand jumps amid market volatility

Indian households emerge as the niftiest of investors as the price of gold skyrockets, crossing the Rs 60,000/10 grams mark on the MCX. As global uncertainties, the banking crisis and heightened market volatility drive up the safe haven demand for the metal, Indian households, one of the world’s largest holders of the yellow metal, have seen the value of their investments gain by almost 8% over the past month.

According to estimates, Indian households likely own up to 27,000 tonnes of gold. At the current record high rates, the value of this precious metal is insurmountable since people all over the country have gold in their coffers, in small or large quantities. As the returns on gold rise, leaving equities in the dust, are Indian households earning better returns than equities?

Gold prices have given strong returns since 2019. Prices were at Rs 31,000 per 10 grams which have now touched Rs 60,000, giving nearly 100% returns in the last four years. This accounts to compounding of 25%, said Jateen Trivedi, VP Research Analyst at LKP Securities. He added that this level is far beyond par levels of 15% in major asset classes. “The metal is touted to be a classic inflation hedge and as per the World Gold Council, a 1% increase in inflation translates into a 2.6% rise in the metal’s demand. If countries start pegging reserves to gold, it can increase the demand of gold substantially and trigger a strong upside,”

Is gold a good bet over the long-term?

Is traditional gold buying the right way to see high returns on investment? In 1999, the price of gold per 10 grams was Rs 4,234. Today, the price is Rs 59,179 per 10 grams, giving investors a return of 1297%. On the other hand, Nifty 50 closed 1999 at the 1480.4 mark, but is trading at 17,096.4 on Tuesday. In absolute terms, the return on the same is 1054.8%. However, during the same period, the Nifty TRI gained 1,492.41%. The TRI (total returns index) also includes price appreciation of the index as well as dividends, interest, and capital gains. Moreover, the CAGR for gold since 2005 is 13.55 while Nifty’s CAGR in the same time period is 12.27.

Why gold prices are rising

“Gold prices have risen almost 7-8% in the past month. The rally in the yellow metal is primarily due to the banking crisis in the west. The liquidity infused by the central banks and the expectations of lower to no rate hikes is pushing gold prices up,” said Colin Shah, MD, Kama Jewelry. “WSJ during the weekend reported that in a new study, economists said they found 186 banks that may be prone to similar risks as of SVB. This raises concerns of a financial contagion and a hard landing in the US, improving the appeal for the yellow metal for its safe haven status. This happens at a time when US Core CPI is at 5.5%, keeping the US Fed in a tough spot. Extreme risk off sentiments and caution prevails in markets and gold is a major beneficiary of this crisis,

Outlook for gold

“Considering the current financial and economic environment we don’t expect the Nifty to deliver a double digit return in this calendar year; vice versa, this negative environment is positive for gold. If gold closes above $2000 (spot) then we might see a drastic jump, that could test $2070, $2185 & $2300 level also. In domestic Gold close above Rs 60,540 then next level to watch would be Rs 61,920, Rs 64,000 & Rs 66,480. Investors are therefore advised to check their portfolio allocation to gold and initiate building up at least a 5%-10% exposure

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