The volatility of gold has always been a matter of great concern though it has been able to maintain its value both in times of inflation and stagflation. Apparently, high prices of gold have never deterred buyers from amassing more and the fetish for gold remains the same.
In an exclusive interview with Reema Sharma of Zeebiz.com, Naveen Mathur, Associate Director (Commodities & Currencies) at Angelbroking talked about the prospects of gold.
What are the driving factors behind the spurt in gold prices?
In the current year, gold prices have been largely driven by the ongoing global economic issues. Economic concerns in the US have heightened with the country losing its AAA credit rating and prevalent high unemployment rate is another cause of concerns. Global policymakers are trying hard to ease the systemic risks but with the depth of the current crisis especially in the Euro Zone any solution will not be helpful from the short-term perspective.
On the back of these issues, gold in the international markets has given returns to the tune of 16 percent on a year-to-date basis as against silver, which has provided returns of only around 2.4 percent in the same period. Silver had initially outperformed gold during the year but being an industrial metal, it succumbed to the downside pressure, taking cues from decline in base metals.
During the year, the yellow metal also increased on the back of dollar weakness, which has slumped by more than 2 percent on a year-to-date basis. In the first-half of the year, a large part of the rally was driven on account of geo-political tensions in the Middle East and North Africa region, which had boosted crude oil prices; thus, supporting gold not only from the safe-haven perspective but also as an inflation-hedge tool.
In the current scenario, prices are driven by the rising European economic concerns as the world markets witness rise in risk aversion as investors move away from riskier and higher-yielding investment assets.
How do you perceive gold as a monetary option? Will the rally continue?
Gold prices have risen steadily in the last two decades from an average of $383/oz in 1990 to the current level of over $1600/oz, an indication of the appeal the yellow metal carries. There are not many asset classes that can match this record. It has been gaining importance as a monetary asset – gold has been increasingly being used as collateral in financial transactions, along with or replacing other high quality assets such as government debt.
Although gold is expected to trade with a positive bias in the short-term and the long-term, we do not expect an unprecedented rally as prices have already increased very sharply. Rather, we expect a consolidation in prices from the short to medium-term perspective.
What are the short, medium and long term support and resistance of the yellow metal?
|Gold Short Term - Sideways|
|S1 – $1627 / 26000||S2 - $1601/25600|
|R1 – $1678 / 26900||R2 - $1702 / 27300|
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|Gold Medium Term - Sideways|
|S1 – $1627 / 26000||S2 – $1570 / 25100|
|R1 - $1690 / 27000||R2 - $1730 / 27700|
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|Gold Long Term - Up|
|S1 – $1450 / 23200||S2 – $1300 / 20800|
|R1 - $1850 / 29600||R2 - $2080 / 33200|
What is the correct level of buying?
From a short-term perspective, we recommend buying in gold around levels of Rs 26,000/10 gram, as it is a crucial psychological mark and prices could take strong support around these levels.
How much should one invest in gold as a part of portfolio?
For an investor with a low to moderate risk appetite and tolerance level, gold investment in his/her portfolio can account for 10-15 percent. On the other hand, for an investor with high risk appetite and tolerance level, investment in gold can be around 5-8 percent as such investors would largely concentrate their investments towards equities, equity mutual funds and other asset classes like real estate.
Should one invest in gold mining fund, ETF or jewellery?
Depending on one’s risk appetite, one should plan their investments in precious metals. In case an investor is looking at gold investment from a long-term perspective, then one should buy physical gold. Whether in the jewellery form or as a gold coin would depend on the requirement, but pure investments should be made in gold coins, which are hallmarked and can be sold at any given point in time without the loss of making charges, which will apply in the case of jewellery.
There are certain set of investors, who would want to look at gold investments without actually holding the physical metal. This trend is slowly picking up pace in India as investors understand the prospect of gold as pure investments, apart from holding it in the physical form, i.e. jewellery. ETFs help an investor to take benefit of the trend in prices, without actually holding it in the physical form and also offer ease of investments, as the trading is same like that in equities.
Will the gold bubble burst? How much correction do you see in future?
From this Diwali to the next, we feel that gold prices should consolidate around levels of $1800/oz in the international markets and around Rs28,000/10gm in the Indian markets.
But the support to sharp upside in prices will remain if economic risks worsen from here on. If policymakers are not able to control the deteriorating scenario then safe-haven demand for gold could get a boost. In that case, prices could test levels of $2000/oz in the international prices and Rs32,000/10gm in the Indian markets, given that the economic scenario worsens from the current state.