Don't splurge on gold this Akshaya Tritiya

At best, buy a coin or two, as the metal isn't expected to see a sharp rise in the coming year

The sheen has been off gold for some time. And, retail investors will do well not to buy the commodity aggressively on the occasion of Akshaya Tritiya this Friday.

Indian gold prices have risen 12.3 per cent since Akshaya Tritiya last year (between May 13, 2013 and April 28, 2014), as the rupee has seen a fall and there is tighter supply due to import restrictions. During this period, the rupee has depreciated 10.8 per cent—-from 54.74/dollar to 60.65/dollar cent—-, while global prices of gold per ounce have fallen 12.13 per cent. At the same time, the Sensex has risen 14.93 per cent and debt instruments such as fixed deposits and fixed maturity plans have given 8-11 per cent returns.

However, while the outlook on the stock market is uncertain due to an impact of the elections, investment experts believe gold prices may continue to take a hit. Kishore Narne, associate director, Motilal Oswal Commodity Broker, says the run gold prices saw through the last decade was triggered by factors such as free flow of liquidity, low cost of money globally due to low interest rates, and financial uncertainty. These, he adds, are changing. “The US Federal Reserve is beginning to unwind and interest rates already easing. In Europe, too, interest rates are moving up and the economic situation is returning to normal,” he says.

There are, of course, fears the Ukraine crisis could escalate and result in to some rise in prices. But most see it as having limited impact, and only in the short run. In fact, Narne expects a sharp drop in gold prices in the future.

Hitesh Jain, commodity analyst, India Infoline Finance, says even if there is a 10 per cent correction, it will be significant. Therefore, it makes sense to wait. “Appreciation in the rupee and moderation in the current account deficit are compelling reasons for any government to reduce the import duty on gold. If that happens, gold prices will fall after the elections. I am not bullish on gold for the next one year,” he says.

Anil Rego, certified financial planner, believes gold savings funds are a good option because these allow one to invest through a systematic approach. This way, one can be protected, irrespective of whether prices fall or gain. Gold exchange-traded funds are good, provided one is investing for the long term.

Investors with an investment horizon of one-two years should avoid gold completely, as any price appreciation is unlikely. Invest in gold only if you can hold it for five years or more; that that case, too, don’t let the commodity account for more than 10 per cent of your investment portfolio.

In other words, as Akshaya Tritiya is an auspicious day, you could buy a coin or two. But don’t splurge on gold this time.