India, world`s largest consumer of the yellow metal, celebrates Dhanteras on Monday, when consumers buy gold to invoke prosperity. In an interview with Ajeet Kumar of ZeeBiz.com, Anurag Kataria, Vice President of ITI, shares his views on gold investment demand, price outlook and various other aspects.
Gold and silver prices are now on steady mode after a major slump. What are the reasons for this slump?
The benchmark comex contract plummeted below 1550 for the first time since July. The Gold Spot prices fell from highs of USD 1812 (19th September, 2011) to lows of USD 1535 on 26th September, 2011. The gold price fell by nearly 11 percent in dollar terms in September, having hit a record high in the early part of the month, it’s the largest one-month fall since October 2008, while on a quarterly basis, the third three months of 2011 marked gold`s strongest performance since the final quarter of last year.
Gold was hammered as the investors sold all holdings to cover losses in other market. Adding to the fall was rise in CME margin. The recent selling of gold was related to panic from hedge funds needing to raise money for redemptions as well as a tightening of margin requirements. Rise in dollar amid Euro Zone crisis also weighed on gold prices. Five of the last seven times the dollar has increased more than 14 percent, gold has fallen on an average 29.8 percent. Sovereign debt issues coupled with a global demand slowdown could further hurt the euro and a range of commodity currencies, boosting the appeal for US dollars.
The current investment demand seems to be more speculative in nature. How sustainable is gold’s recent pull back?
Recent fall has been more on panic in markets and mirroring fall across commodity pack. After huge volatility, market could see some consolidation.
Do you see seasonality in prices of gold as demand appears to be firm, especially during the October-December quarter?
Historically, gold has given good returns in last quarter as it is festive season and also the Indian marriage season. Gold had given 2 percent return in 2010, 12.8 percent return in 2009, 13 percent return in 2008. However, this year considering the huge swing in prices since start of the year and also liquidity crunch in international market, the demand is to remain moderate in last quarter.
Do you think gold future is a better investment product compared to physical gold and ETF products?
No other investment option endures the test of time so well and hence it`s universally accepted as one of the best financial assets to possess in rough economic conditions. Not only investors but even nations try to hoard gold at times of crisis. But as of now best option to invest in gold is to invest on NSEL E-Series Gold as it gives the comfort of easy liquidity, reach, safety, and low cost.
How do the returns from gold futures compare with gold ETF products and physical gold?
In the last four years, volumes in gold ETFs have grown over 164 percent. Volume in gold ETFs in India, the world`s largest consumer of bullion, is more than 15 tones-minuscule compared with the country`s annual physical gold demand of 900 tonnes. Despite the selloff, holdings in ETF and bullion sales remained firm. Despite outflow over the past few weeks, gold holdings in SPDR Gold Trust, the world`s largest ETF, stayed at record level.
Are there any signs of further overheating or blow-out?
From Current Market price of USD 1648 we cannot see major blow out on prices. Only on break of USD 1700 on upside we could see major rally again. Till then markets are bound to remain weak.
What should an average investor do under current circumstances?
An average investor should invest in gold via systematic plans i.e. to say start accumulating 1gm of gold (via NSEL). Systematic investing at lower levels should be aimed at. While the exposure levels maybe smaller as compared to futures markets, you manage to skirt emotional pitfalls arising out of volatility in the price.
Wouldn’t a slight ease in price elevate demand especially during Dhanteras?
We think that demand from India will be resilient to higher gold prices. But yes, some small buying could be seen during traditional time for festivals.
How have gold products performed over investment products such as stocks, mutual funds and real estates, during the last one year?
The gold prices have risen for 10 consecutive years. In 2010, Gold had given annual return of 18.75 percent, compared with 17.63 percent on Nifty, 9.9 percent on FDs and 8 percent in PPF.
How much higher do you think the price of gold could go?
On higher side, prices will rally on break of USD 1700. Markets will test USD 1467 before rallying to new high.