While price predictions are tough, we do believe that a shift from global equities and bonds towards gold could lead to a significant spike in the gold prices, says Chintan Haria.
A Gold-buying rush is expected to start soon ahead of the upcoming Dhanteras and Diwali festivals. In this online Q&A, Chintan Haria, Head of Investment Strategy at ICICI Prudential AMC answers important questions investors should know before going for the yellow metal.
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As there seems no possibility of a ceasefire in Gaza conflict anytime soon, how is gold seen as an asset class, as it is already at its peak?
During times of geopolitical instability, investors typically tend to opt for safe haven asset class like gold as geopolitical turmoil has the potential to cause economic instability and volatility. In such scenarios, gold acts as a hedge, giving investors access to a liquid and stable commodity that they can easily turn into cash when needed.
Unlike paper currency, gold is not susceptible to depreciation due to inflation or unstable political environments. Furthermore, gold has low correlation with other financial assets like equities and bonds, making it a useful instrument for diversification, thereby mitigating risks in a portfolio. All of these factors make gold an attractive asset class in current market environment.
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There are talks that it might even touch 70,000 mark. Do you think it’s possible? Does it mean that some flows from equity may flow to Gold? What could be the other triggers that may influence golds trajectory?
Gold in Dollar terms has been flat over the last 12 years. In this timeframe, equity and bond markets saw a rapid rise in institutional and pension fund exposures. Now, due to rising interest rates and geopolitical tension, Central Banks have shifted towards gold. World Gold Council data shows that China has been continuously adding gold over the past few months.
While price predictions are tough, we do believe that a shift from global equities and bonds towards gold could lead to a significant spike in the gold prices. The other triggers could be a potential flare up in inflation across global economies, owing to the rise in oil prices. This, together with ongoing quantitative tightening undertaken by global central banks, could lead to another cycle of rate hikes soon.
Should one opt for Gold bonds, Gold ETF or Gold funds?
Basis one’s portfolio requirement, an investor can choose between these three different forms of taking exposure to the yellow metal. Each has its unique set of advantage. If an investor is looking to invest in a staggered manner through SIPs, then one may opt for gold funds, as this facility is not available in any of the other options.
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What can be the ideal proportion of gold in an investor’s portfolio?
It is best to consult a financial advisor to decide on the ideal allocation to gold in a portfolio. As a general thumb rule, an investor may consider allocating upto 10% of their portfolio to the yellow metal.
What can be the ideal duration for which one should invest in gold in current times?
Gold should always be maintained as a part of one’s portfolio allocation to benefit from the role the yellow metal plays in a portfolio. Hence, the approach to invest in gold should be long term in nature rather than tactical.
Is buying physical gold advised?
In India, gold holds a sentimental value and is a part of various traditions. So, one cannot replace physical gold completely. But when it comes to investment and asset allocation purpose, the ideal approach is to hold gold either in the form of an ETF, bond or a fund.
What are the risks of Gold ETFs and Gold Funds?
The one risk that both the gold ETF and gold funds face is the market risk impacting the price of gold.
How is income from Gold ETFs and Gold funds taxed?
Profits on redemption of Gold ETFs and units of gold funds will be taxed as short capital gains at the slab rates applicable to the investor irrespective of the holding period.
Disclaimer: Views expressed in this Q&A are those of the respective experts/commentators. Readers are advised to consult their financial advisors before investing in any asset.
