More downside expected in gold prices

India is the world's largest consumer of gold and the precious metal is the second-largest imported item for the country after petroleum. And the sale of the yellow metal in the country only goes up during festivities. However, this Akshaya Tritiya, which is considered an auspicious day for buying gold, silver and other metals, people might just resort to tokenism.

In an exclusive interview with Reema Sharma of Zee Media Corp, Shiv S Shrivastava, MD & CEO of IGuru Research shared his views on investment and the prospects of returns in gold.

Excerpts...

What kind of demand for gold do you see this Akshaya Tritiya? Will continued weakness in gold prices push up jewellery sales?

I am not expecting very steep rise in demand for gold because of bad conditions of farmers due to unseasonal rain. Moreover, people are currently showing interest in buying gold only as a 'token' as everyone is expecting further dip in prices.

How was the demand last year?

Last year too there was not significant increase in demand of gold because people preferred either staying away from purchasing or made token purchase due to continuous decrease in gold prices.

What mode of investment do people prefer?

Majority of people prefer buying gold jewellery because in the Indian custom people prefer giving gold as wedding gifts, and buying gold during auspicious occasions is also a ritual here. Moreover, people also buy gold coins during Diwali, Dhanteras and Akshaya Tritiya. Investments options like e-gold, future contracts are less known options still.

What trend do you see in mid, short and long term investment?

Downside movement is expected in prices of gold in short and medium term due to strengthening of the US dollar, expectations of increase in interest rate in the US, huge loss of standing crop in India due to unseasonal rains, expectation of import duty cut by the government and many more important factors. Gold prices may increase in long term, which entirely depends on the economy of major countries in the world.

Over the last few months gold price has been volatile. Given the current trend, how much should one invest in gold?

We have witnessed a lot of volatility in prices of gold due to volatility in price of the US dollar, signals of downside in economy and indications by Fed to increase interest rates. We may see more falls in prices of gold if Fed increases interest rates as has been expected. Talking about investment in gold, everyone should make at least a quarter of their investment in gold because we can expect higher returns in gold when there is a downfall in the economy.

The government has been repeatedly asking people to desist from buying gold and instead invest in other saving instruments. Do you espouse this?

Government is asking the people to avoid buying gold because high import of gold results in increase in current account deficit which can further lead to depreciation of currency, high Inflation and slowdown the economy. Secondly, money invested in gold is a dead asset and nowadays black money is also being used for this purpose. However, I would suggest that everyone should invest some part in gold because it is the only asset which gives profit when everything else fails.