Gold prices could top Rs 50,000 in 12 months, subdued demand on Akshay Tritiya likely

Physical demand for gold could wane, but digital-purchase options abound

Gold necklace at a jewelry shop Representative image | Reuters

Akshay Tritiya is an auspicious occasion for Hindus and Jains. Associated with wealth and prosperity, it sees many people flocking to jewellery showrooms to buy gold. The yellow metal has always been attractive for Indians, be it as wedding jewellery or investment. This year, however, is likely to be a lacklustre affair with the country in a nationwide lockdown till May 3, as the government looks to control the spread of the COVID-19 pandemic that has ravaged the world.

In the last two months, India’s gold imports have plunged more than 73 per cent, according to analysts. Last year, on Akshay Tritiya, 33-35 tonnes of gold was sold, according to Anuj Gupta, DVP, commodities and currencies research at Angel Broking. With most bazaars and malls closed and only stores selling medicines and essential grocery allowed to open right now, the typical frenzy of gold buying on Akshay Tritiya, that falls on April 26 this year, will be clearly missing.

“This year we are expecting no physical demand in gold for many reasons, first is lockdown and second is higher gold prices,” said Gupta.

Despite the lockdown, people will still be able to buy gold digitally. Platforms like Paytm and Freecharge offer people a convenient option to buy digital gold. Goldrush by Stock Holding Corporation of India and Me-Gold by MMTC-PAMP in partnership with Motilal Oswal Financial Services are other platforms to buy pure gold digitally too.

This year, many jewellers are also curating unique options for people to buy gold. For instance, Kalyan Jewellers has launched gold ownership certificates. You can book gold coin ownership certificates online, which you will be able to redeem for jewellery or gold coins any time after the lockdown lifts. Others like PC Jeweller are offering discounts on diamond jewellery, gold coins and making charges of gold jewellery on their online portal.

Tanishq, the jewellery retail chain owned by Titan is also running Akshay Tritiya offers on its website and customers who shop online can, once normalcy resumes, pick up their purchases in-store or get it delivered to the doorstep.

Investing in gold exchange-traded funds (ETFs) or gold mutual funds and buying sovereign gold bonds is another way one can get exposure to gold.

ETFs have never been very popular in India, unlike in many other parts of the world. The spread of coronavirus pandemic has raised the spectre of many economies falling into a recession this year and worried investors have flocked to gold as a safe-haven asset, driving prices higher.

According to the World Gold Council, global gold ETFs saw net inflows of $23 billion, adding 298 tonnes, in the January-March quarter across all regions. This was the highest quarterly amount ever in absolute US dollar terms and the largest tonnage addition since 2016. The rising demand has led to a 14 per cent year-to-date rise in gold prices in dollar terms.

In India, gold prices had started rising last year, and have continued to rally despite the drop in demand in the last few weeks. As gold is priced in US dollars, the depreciating rupee will only push prices higher for buyers in India. In April 2019, gold was trading around Rs 33,000 per 10 gram. Last week it hit a record of over Rs 47,000 per 10 gram, that's a 43 per cent year-on-year jump. Gold is still trading above Rs 46,500 levels.

“Price outlook on gold continues to remain positive with gold prices expected to rise significantly to meet the investor demand as a safe haven asset and due to depreciation of the rupee,” Shekhar Bhandari, business head—global transaction banking and precious metals, Kotak Mahindra Bank said.

Bhandari expects prices could settle above Rs 50,000 per ten gram by the end of this financial year ending March 2021, primarily driven by the COVID-19 crisis and its significant impact on the global economy.

As the world weighs the economic impact of the COVID-19 pandemic, equity markets have crashed and central banks around the globe have slashed interest rates. The Reserve Bank of India too cut its benchmark repo rate by 75 basis points and more interest rate cuts are expected in coming months.

Gold will be a hedge against uncertainty and a good investment vehicle in the current scenario, said Pankaj Bobade, head fundamental research at Axis Securities.

“One should have a part of the portfolio invested in Gold ETF as an insurance against the possible volatilities expected in the global financial market,” he said.

Navneet Damani, vice president, commodities research at Motilal Oswal Fiancial Services, says gold prices could target upwards of Rs 52,000 over the next 12 months.

“It’s a hedge against inflation, an investment and an insurance depending on the market participant. Under the times of distress or panic, gold performs best as investors want to get out of riskier assets and take shelter under the safe-haven asset,” he said.

Gold could contribute around 10 per cent of a person’s investment portfolio, said Prashant Joshi, co-founder and partner, Fintrust Advisors.