Gold: Place long-term bets on structured plans, bonds for steady returns

Roll-out of a uniform indirect tax code or GST and Prevention of Money Laundering Act, or PMLA, has put the gold market in a spot. At the global level, expectations that the US Federal Reserve may raise interest rates for a third time by December this year has prompted traders to take a cautious stance on bullion. Gold is highly sensitive to the US interest rates and inflation and increases the opportunity cost of holding non-yielding bullion which is priced in US greenback.

Looking ahead, I don’t expect any strong moves in gold prices in the immediate future in either direction, unless things change fundamentally. US rate hike changes and dollar trajectory are key factors that traders will keep a tab on at the global level. Back home, government policy decisions and rupee volatility would be the prime factors which could decide the direction of domestic gold prices in the near-term.

From an advisory perspective, I suggest investors hold gold till December before taking a call on the yellow metal, as the US Fed will clear the air on interest rates by then. This will impact how the dollar moves, which in turn, will dictate the trend in gold prices.

Gold prices are ruling a bit higher in India as compared to international prices. Therefore, in the short term, it is better for investors not to take any fresh long positions. That said, they can continue to invest in gold in the typical formats by monthly or periodic incremental investments.  Since the Indian rupee is depreciating against US currency, it is better for investors to take a long call on gold by investing in Sovereign Gold Bonds (SGBs) periodically auctioned by RBI, which have several add-on benefits like sovereign guarantee, safety, easy liquidity among others. 

Hareesh V is Research Head, Geofin Comtrade