In the week from October 7 to 12, gold prices remained volatile in the international as well as domestic markets. Gold prices in the international markets have moved in the range $2,600-2,660/0z, while on the MCX prices moved in the range of Rs 74,800-76,500/10 gms i.e a range of around Rs 1,700/10 gms. Prices corrected from higher levels on account of probable ease of geo-political tensions, ease of US inflationary concerns and probable rate cut of 25 basis points in the next month US FED meeting.
How do investors stack gold in their portfolio?
Now that gold prices are a mix of a host of factors and the performance of the yellow metal is always better in the longer run, the investors should be aware of how to stack gold in their portfolio to take better advantage of diversification.
SGB: Opportunities for investors
Investment in Sovereign Gold Bonds (SGBs) is one of the ways of digital investment in gold. These bonds are issued by the Reserve Bank of India on behalf of the Government of India. These bonds are denominated in multiples of grams of gold with a basic unit of 1 gram
The tenor of the bond will be for the period of 8 years with exit option in 5th, 6th,7th year to be exercised on the interest payment dates. Minimum permissible limit will be 1 gram of gold and maximum permissible limit shall be 4 KG for individuals, 4 Kg for HUF and 20 Kg for trusts and similar entities per fiscal year (April-March) notified by the Government from time to time.
The redemption price will be in Indian Rupees based on the simple average of closing price of gold of 999 purity of previous 3 working days published by IBJA. The investors will be compensated at a fixed rate of 2.50 per cent per annum payable semi-annually on the nominal value. Bonds will be tradable on stock exchanges within a fortnight of the issuance on a date as notified by the RBI.SGB Vs physical gold
Investing in gold is much easier and more convenient now. Sovereign Gold Bonds (SGBs) are the perfect alternative to investment in physical gold. With these bonds, you can enjoy capital appreciation and also earn interest every year. These bonds, issued by the Government of India, also eliminate several risks associated with physical gold.
Unlike physical gold which does not provide any interest, SGB provides interest to the investor at the rate of 2.5% per annum and the last interest will be credited to the investor along with the principal amount. Also, these bonds carry sovereign guarantee on redemption amount and on the interest as well.
Price of Bond will be fixed in Indian Rupees on the basis of simple average of closing price of gold of 999 purity published by the India Bullion and Jewellers Association Limited for the last 3 business days of the week preceding the subscription period. The issue price of the Gold Bonds will be ₹ 50 per gram less for those who subscribe online and pay through digital mode. SGB’s are not taxable if held till maturity.
Now that we know that SGB’s are better for investors in comparison to other forms of investment in gold. Let us understand where prices are headed in the week ahead.
Gold price outlook
Gold prices are at their highest in the history of gold markets once again whether it be in the international or at the domestic arena. Prices continue to make higher highs in the past few weeks and if the geo-political escalation happens, the highs in the yellow metal will be taken off sooner than expected.
We see gold prices in the international markets to move higher towards $2,600/0z mark in the international markets and Rs 77,000.10 gms mark in the Indian markets in the coming week. Our advice to investors is not to time the gold markets as there is no perfect buying time or an opportunity. Gold has to be accumulated at every level to get the benefit of value-cost-averaging.
(The author is Deputy Vice President – Research – Non-Agri Commodities & Currencies at Angel One)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)