Gold investors have gained pretty decent returns in the last 10-years in India. A mix of a rally in international prices and a falling rupee have propelled prices, resulting in pretty decent annualized returns to investors. Let's take a look at the historical prices of gold in the last 10-years. In fact, gold has grown almost 10 times in the last 20-years.
Let's take a look at the historical price movement of gold in India in the last 10-years. This is for 24 karats and reflects 10 grams. Prices are indicative and cannot be accurate.
|Year||24-karats for 10-grams|
The big post covid jump in gold prices
For almost 6-years between 2011 and 2017, gold prices barely moved in India. Thereafter, there was some marginal traction, but the real gains were notched in 2020 and 2021, following the discovery of Covid-19 infections. Gold being a safe haven asset, investors took shelter in gold and international prices rallied. In India, gold for 24 karats hit a peak near the Rs 54,000 levels, after which there has been some dip.
The sharp run-up in the last two years has prompted lesser investment physically in the precious metal. In fact, demand for gold in countries like India has reduced considerably. Physical demand over the last 1-year has also been jolted by covid-19 cases. Investors across the globe continue to look to invest in gold ETFs, where there maybe reasonable demand going ahead.
What lies ahead for gold prices?
With the rally of the last 2-years, it's unlikely that we will see any solid movement in the precious metal. In fact, our own belief is that there maybe a long period of stability in the precious metal. Gold requires a trigger like a geo-political tension or a covid to spark a rally. Interestingly, the global economy is gathering steam, which is good news for equities and not so for gold. At the moment, in the short to medium term, there are no triggers to spark a big rally in the precious metal.
In India, the rupee movement against the dollar plays a big role in the movement of gold. If the rupee depreciates against the dollar, it leads to gold prices going higher and vice versa.
The government of India in the Union Budget proposals this year announced a cut in import duty of gold. The government announced cut in customs duty on gold and silver to 7.5% from 12.5%. India imports bulk of its gold requirements and hence the cut in the duty, did make gold prices cheaper.
Gold price movement in 2021, 22 karats at the local jeweller
|Rs 48, 940||Jan 1, 2021|
|Rs 48,450||Feb 1, 2021|
|Rs 44,940||March 1, 2021|
|Rs 43,370||April 1, 2021|
|Rs 44,170||May 1, 2021|
|Rs 46,900||June 1, 2021|
As can be seen in the table above, the sharp fall in gold prices in the month of Feb and March was largely to do with the reduction in import duties of gold. Since then, gold in the international market has moved higher, which has pushed domestic markets higher. It's likely that gold would hover in that range of Rs 45,000 to Rs 50,000.
Much would depend on gold prices in the global markets, where movement of inflation in the US and rising bond yields pose a major risk to gold prices. All in all, if you are looking to buy gold, you may do so only on declines, as there maybe a little more downside left. If you are looking at consumption related buying, then there is no choice, but to go ahead and buy.