Should You Invest In Gold At Rs 47,500 Per 10 Grams?

Gold has had a remarkable run since the start of the year. 22 karat gold rate in India at the local jeweller shop, which was around Rs 38,200 has now galloped to Rs 46,500, while 24 karats gold rates, which were placed at Rs 39,300 at the start of the year has now surged to Rs 47,500 per 10 grams. These rates for physical gold and not ETFs or e-gold.

Should you buy gold now?

It's important to remember that gold prices gain, when there is chaos or bad news around the world. As Covid-19 created demand destruction for goods and services and subsequently economic distress, gold prices kept rallying from those levels of Rs 39,000 to surge past the 47,000 mark. The precious metal has even crossed the Rs 48,000 per 10 grams mark.

As we write, the US has seen record number of Covid-19 infections and so has India. The buzz around a vaccine has always been there, but, it sure is going to take time. In the meantime, if there is a second wave and a shutdown of many cities across the globe, gold would gain momentum once again. A further rally cannot be ruled out.

However, if it is "business as usual", be rest assured that gold prices could fall, though not dramatically.

 

Immediate triggers

Data from around the world, especially the US would continue to drive prices of gold.

"Data released from the U.S. showed nonfarm payrolls rose by 4.8 million jobs in June, the most since the government began keeping records in 1939. The U.S. State Department also warned top American companies to check their supply chains and ensure they are not doing business with entities linked to alleged human rights abuses against Uighurs in China's Xinjiang province. Market participants will be keeping an eye on the service PMI number expected from major economies. Indicative of sentiment, holdings of SPDR Gold Trust rose 0.8% to 1,191.47 tonnes on Thursday. Broader trend on COMEX could be in the range of $1750-1792 and on domestic front prices could hover in the range of Rs 47,700-48,380," Navneet Damani, VP - Commodities Research, Motilal Oswal Financial Services said.

 

Should you buy gold than at Rs 47,500 per 10 grams?

Gold has already rallied a fair bit and the upside potential maybe limited. For those looking at using gold, there maybe no other option. However, for those looking to invest, you might not reap too much, given the sharp rally. What we suggest is to always keep at least 10 per cent of your assets in gold, to hedge against any risk of economic chaos.

We are living in uncertain times, and nobody would believe that many countries and cities around the world would face a lockdown. While nobody can predict the movement of any asset class, it's best to stay invested in more than one asset class including equities, mutual funds, gold and safe well rated fixed deposits

 

About the author

Sunil Fernandes has spent 25 years covering business and finance in India and abroad. Sunil has worked with frontline daily newspapers including Hindustan Times, Deccan Herald and Gulf Times. He has also worked with investment magazines like Dalal Street Investment Journal and Oman Economic Review. His forte remains stocks, mutual funds, gold and tax planning.