'Dhanteras 2020: Buy gold in any form but maintain 10-15% allocation as it is a portfolio diversifier'

Gold is a universal currency or 'real Dhan', having the significance of social & financial security, considered as a store of value and a wealth preserver. Buying this shiny asset on the festival works as a systematic investment plan to make a savings pool, said Sugandha Sachdeva, VP of Metals, Energy & Currency Research at Religare Broking.

Gold is the best performing traditional asset this year, outshining other asset classes amid the dark clouds of uncertainty. Going ahead also, the prevailing scenario seems to favour gold.

edited excerpt:

Q: Why is Dhanteras important in terms of buying gold?

Dhanteras 2020 falls on November 13, which marks the beginning of Diwali festivities. As the name speaks for itself 'dhan' which refers to wealth & prosperity, it is all about the renewal and securing of auspiciousness. It has been a tradition to purchase gold on this auspicious occasion as it is believed to bring good fortune and ward off negative energy.

Gold is a universal currency or 'real Dhan', having the significance of social & financial security, considered as a store of value and a wealth preserver. Buying this shiny asset on the festival works as a systematic investment plan to make a savings pool. Indians not only have a strong affinity towards gold as jewellery but also find it safe, eternal and an attractive investment. It has a strong track record of rewarding investors with steady returns over the years as can be seen from the accompanying chart, which depicts the returns in gold since 2006.

Q: What is your outlook on gold especially given the current environment? What are key triggers and risks for gold prices in Samvat 2077?

Gold is the best performing traditional asset this year, outshining other asset classes amid the dark clouds of uncertainty. Going ahead also, the prevailing scenario seems to favour gold as countries around the world are struggling with economic hardship and to fight against the same, central banks are adopting easy monetary policy and governments have been doling out financial support to prop up the economies. Low-interest rates and stimulus packages are the weapons to bring the dwindling economy on track and in doing what is needed, currencies would lose charm and inflation expectations would keep rising - that makes gold a prime beneficiary.

Also, metal's graph is rising high on the back of investment demand, while physical demand is likely to gear up as the festive season knocks in. After a decent correction from the recent highs, prices have been consolidating for a while and seem to resume their momentum soon. However, optimism surrounding effective trials of COVID-19 vaccine could keep prices in check for a while, but still, uncertainty continues to linger on in the absence of a final product and scalability of production to provide vaccine to masses. Nonetheless, COVID-19 curve is still unknown and it seems that the global economy will still take time to return to pre-pandemic levels. Also, the huge mountain of debt which is piling up in the developed world will lead to currency debasement. In such a scenario, gold looks to remain in demand from investors seeking to preserve their wealth.

Q: How do you sum up Samvat 2076 for Gold?

It has been a splendid year for gold as it marked an all-time high of Rs 56,191 per 10 grams and is up nearly 30 percent YTD on the domestic bourses, as investors were seen seeking safety in the precious metal. As the pandemic led crisis has left countries big and small in to disarray, gold significantly outperformed all the major asset classes while living up to its safe haven stature. Positive price momentum has remained supportive for gold investment demand in 2020, far outstripping the negative effect of lower consumer demand as economic activity witnessed a slowdown due to the lockdown restrictions. Investors globally were seen scrambling for Gold ETFs, with ETF holdings worldwide rising to a record high of around 3,880 tonnes in Q3 2020. Record low-interest rates, easy money pouring out of central banks and government stimulus packages, subdued yields and dollar weakness all have ensured to boost gold prices in Samvat 2076.

Q: Will Gold prices hit a new high in Samvat 2077 or will remain rangebound? What is your strategy on Dhanteras day?

Prices have corrected by almost 10 percent from the highs and have been rangebound for quite some time, but they again look attractive at this point of time after the recent weakness. Though gold prices still remain prone to near term price shocks, and movement may not be linear, but fundamental drivers steering gold prices are still in place. Prices are finding support close to Rs 49,200 per 10 grams ($1,850 an ounce) mark, followed by the major support which rests at Rs 47,700 ($1750) for a medium term perspective. Further, upwards price action could trigger above $1,975 resistance level that may fuel the rally towards new highs, where projection calculations suggest fresh upside territory initially near Rs 60,500 ($2,250) and for Samvat 2077, prices are even expected to scale higher towards Rs 65,000 mark.

If we talk about near the term strategy on Dhanteras day, one can invest in gold through any of the available avenues for a long term perspective or Buy Gold December Futures around Rs 49,900-49,700 area, while looking for near term levels of around Rs 51,800 initially and then Rs 53,500. On the downside, protective stops should be placed at Rs 48,500.

Q: Should one buy physical gold only or should one think of other options to have gold on Dhanteras day?

Depending upon the objective and suitability, one can explore various options to buy gold. Physical gold which has its own charm, is the conventional way of buying gold in the form of jewellery, coins, bars that serves the dual purpose of investment as well as consumption. However, it's time to look towards gold not just as an ornament but for investment purposes as well and for that, we have other effective alternatives such as Gold-backed ETFs, Sovereign Gold Bonds or Gold Fund of Funds. ETFs are safer than physical gold as one is relieved of the hassles of storage and safety. Also, they provide cost averaging benefit and assure purity. Sovereign gold bonds are another superior option, wherein one can get the additional benefit of 2.5 per cent interest per annum, over and above the market value of gold at the time of maturity. One can also invest in the yellow metal at regular intervals through the SIP mode in gold funds, without having to open a demat account. Furthermore, for those who can actively manage there are gold futures (with gold as an underlying asset) which can be bought through commodity exchanges. They give leverage benefit to maximize returns as they require only a margin amount instead of the full payment right away. Whatever be the avenue to invest in gold, it is advisable to maintain 10-15 percent allocation in gold, considering it as a portfolio diversifier. Though buying gold assumes all the more prominence around the auspicious occasion of Dhanteras and Diwali, but gold being an evergreen asset, anytime is a good time to buy gold.