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Gold dropped 6% on July 23 after Finance Minister Nirmala Sitharaman reduced the customs duty on gold and silver to 6%. Although prices have partially recovered, they remain 2% below the levels seen a day prior. Meanwhile, international gold prices have increased by 4%. Despite this, gold prices have risen by approximately 13% in 2024, compared to a 14% gain in the Sensex.
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While the customs duty cut in this year’s Budget was a dampener for the yellow metal, resulting in a net 2% fall in the domestic prices since then, gold’s year-to-date returns nearly match the returns by the BSE Sensex. As valuation worry looms in equity markets, raising allocation in bullion is what the doctor orders.
Gold fell 6% on July 23 after Finance Minister Nirmala Sitharaman slashed the customs duty on the yellow metal and silver to 6%. Though recovered somewhat, it is still trading 2% below the levels it was a day before. In contrast, the prices in international markets have risen by 4%.
Notwithstanding this, gold prices are up by around 13% in 2024 so far, versus 14% gains in the Sensex.
Expert Prathamesh Mallya, DVP- Research, Non-Agri Commodities and Currencies at Angel One, calls gold a, “portfolio diversifier for investors, going on to say that it could be a substitute for equities in the near- to medium-term for less risk appetite investors. Geo-political problems and US elections are strong triggers to keep gold’s haven appeal up,” he added.
Investors with lower risk appetite can consider investing in gold to create long-term wealth, he said, suggesting a 10% allocation in one’s portfolio. Over a five-year -period, gold prices have appreciated by 122%, he stated.
Investors should keep 20-25% portfolio allocation for gold under the current circumstances. However, refrained from calling it a “complete substitute” for equities even for those with low-risk appetite. He sees gold to be a go to asset class for investors in the near- to medium-term.
Vouched for gold’s return prospects. “With the likely weakening of USD and regulatory clampdown on alternative assets like Bitcoins, gold is likely to deliver healthy returns in the short to medium term”.
This analyst suggested at least a 5% allocation to gold but for those who still have a heart for equities can capture the upside in gold prices by purchasing shares of gold finance companies. In his view, with a price increase financiers will have leeway to lend more, aiding to the company’s growth.
Agrawal declined to hazard a guess on Sensex target for this year, emphasising his focus on stock-specific opportunities in structural steel tubes, railway wagons, jewellery and renewables.
Gold Market Outlook
International prices hover near the $2,530 mark and according to estimates by BofA, gold could test levels of $3,000 by 2025. While domestic prices will take cues from their overseas peers, it probed if the customs duty cut could potentially limit the uptick in domestic prices, going ahead as well.
Pooja Chauhan sees an upside of up to Rs 80,000 by next year. His advice to fresh buyers is to add on dips in a staggered manner while those holding it should stay put.
Domestic prices will follow the trend in the international market and if the spot gold prices rise to the $3,000 mark, local prices could test levels of Rs 85,000 in all likelihood.
Neal Bhai anticipates some consolidation in the near term even as he remains bullish in the long term. Gold price is likely to move towards Rs 73,200-74,200 with strong support at Rs 69,700-68,500, Neal Bhai said, recommending investors to stay long and use minor corrections as a buying opportunity.
In the last five years, gold has delivered an average 15.60% return.
