Investors barely have any good quality investment options. It's extremely hard to generate returns from fixed interest yielding instruments, particularly fixed deposits. Currently, interest rate on good quality bank deposits are around 5.5 per cent, which barely covers inflation.
On the other hand, shares or equities have rallied so sharply, it is possible that they remain risky bets. In fact, price to earnings multiples for Nifty companies has exploded to 36 times, which defies any sense of logic. Real estate is illiquid and more of a long term strategy.
Against this backdrop, gold could remain a good bet, given that it has fallen around 20 per cent from peak levels.
Gold rates in Bangalore at the local jewellery (excluding GST and TCS)
|Previous price||22 karats gold (per 10 grams)|
|Jan 5, 2021||Rs 48000|
|Feb 5, 2021||Rs 46500|
|March 5, 2021||Rs 41450|
|March 10, 2021||Rs 41810|
From the above table we see that gold has fallen significantly over the last couple of months.
Reasons for the fall in gold prices
Among the major reasons for the fall in gold prices in India has been the government Budget proposal to reduce import duties on gold and silver to 7.5% from 12.5%. This was proposed in the Union Budget 2021-22 as announced by the Finance Minister.
However, a farm cess of 2.5% was added to customs duty. Despite that there has been a ner reduction of 2.5 per cent on the duty.
Among the other the reasons for the sharp fall in gold prices is the increase in yields of the US treasury. When bold yields rise, they tend to push gold prices lower.
Also, there are worries that economic recovery across the globe has led to a rally in commodity prices and hence inflation. When Inflation rises, it could lead to an increase in interest rates, which tends to push gold prices lower.
India imports a bulk of its gold requirements and hence any increase in international prices of gold, pushes prices of gold higher in the domestic markets as well.
Apart from the above two reasons, a slight strength in the Indian rupee has made imports of gold cheaper.
Should we buy gold now?
To be honest one of the biggest reasons to buy gold is a fall in the price of the commodity. Apart from this the other reason is that there are no other attractive investment options. Equities have run far ahead to merit any kind of investment and interest rates have collapsed as mentioned earlier.
This leaves investors with very limited options. While real estate is an opportunity, here again it not a liquid investment and is more of a long term option.
This leaves one with an investment option in gold. Apart from this, the precious metal is a good investment to divest ones investment.
At the moment gold prices range from Rs 41,000 to Rs 42,000 for 22 karats depending on the city, which is very lucrative. In fact, a dip below the levels of Rs 40,000 should be a good buying opportunity for investors. Once can look at options like gold futures and gold etfs as well. Investors can look at buying into various gold etfs like Nippon Gold ETF, SBI Gold ETF, UTI Gold Exchange Traded Fund etc. However, most of these tend to offer a more or less similar returns.