Akshaya Tritiya is traditionally seen as an auspicious day to purchase gold, symbolizing prosperity and good fortune. However, with gold prices now crossing the Rs 1 lakh mark per 10 grams, many potential buyers are questioning whether it’s still a good time to invest. After all, the gold market has been on a remarkable rally, delivering significant returns in the past year.
The Gold Bull Run: What’s Driving It?
Gold has delivered impressive returns, rising around 32% over the past year, far outpacing the Nifty 50, which only returned 5.7%. A key factor driving this surge has been geopolitical instability, such as trade disputes and economic uncertainties, which have pushed investors towards gold as a safe-haven asset. Additionally, central banks—especially in Asia—are increasing their gold reserves, reducing their dependence on the US dollar. Countries like China, Russia, and India have been particularly aggressive in stocking up on gold, contributing to the overall upward pressure on prices.
Shaily Gang, Head–Products at Tata Asset Management, believes that while the recent rally might seem sharp, the long-term fundamentals for gold remain strong. She suggests that Akshaya Tritiya presents an opportunity for investors to begin or increase their gold holdings, recommending a staggered investment approach to manage short-term volatility.
Factors to Watch: The Fed and Interest Rates
While gold’s appeal as a safe-haven asset remains robust, interest rates present a potential headwind. When the US Federal Reserve raises interest rates, fixed-income investments like bonds tend to become more attractive, potentially diverting investment away from gold. Higher interest rates can make gold less appealing compared to other income-generating assets, particularly in a stabilized or recovering market.
Vishal Bajaj, Director at Client Associates, points out that historically, after periods of high returns (like the 40% gains seen over the past year), gold’s subsequent 12-month returns tend to be more modest—averaging just 4%. This suggests a possible slowdown in gold’s price growth in the near future.
Gold vs. Equities: Historical Context
According to Edelweiss Mutual Fund, the current Sensex to Gold ratio stands at 0.86, below the long-term average of 0.96. This suggests that, historically, equities are likely to outperform gold in the next 3 years, given that gold is slightly overvalued relative to equities at the moment.
Despite gold’s strong performance, equities may provide better returns if the markets stabilize. Experts recommend considering gold as a part of a diversified portfolio, rather than investing heavily in it at a time when it may be overvalued relative to other asset classes.
How to Invest: Digital Gold, ETFs, and Mutual Funds
For those still inclined to buy gold this Akshaya Tritiya, digital investment options provide an easier, more transparent route. Gold ETFs and gold mutual funds are two popular choices, offering the benefits of liquidity and convenience. These options are regulated by SEBI, providing more security compared to unregulated digital gold sold through online wallets.
Gold ETFs: Traded on stock exchanges, these are backed by physical gold and are ideal for investors with a demat account.
Gold Mutual Funds: These funds invest in gold ETFs and are suitable for investors without a demat account.
Expert Recommendations: Moderation and Staggered Investment
Experts generally recommend moderating gold investments in the current market environment. Rajul Kothari of Capital League advises allocating 5-10% of your portfolio to gold, particularly via mutual funds. He suggests that gold should remain a long-term investment, built gradually over time.
Vishal Bajaj, however, advocates for an underweight stance on gold in the short term, recommending 5-7% allocation in a long-term portfolio. He emphasizes a cautious approach, particularly given the current high price levels and the possibility of corrections.
Conclusion
If you’re looking to buy gold this Akshaya Tritiya, tradition and sentiment align with gold purchases on this auspicious day. However, investors should balance short-term risks with long-term potential. With gold prices at record highs, it’s crucial to approach with caution, and a staggered, diversified investment strategy is likely the best route. Focus on moderate allocations and consider spreading out purchases to avoid chasing price peaks, as gold’s future trajectory remains influenced by complex global factors.
In essence, gold may continue to shine as a safe-haven asset, but investors should be mindful of current price levels and global economic conditions before making significant commitments.
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