But there are concerns. The World Gold Council (WGC) has estimated that India’s gold jewellery demand slumped 26% on a year-on-year basis in the March quarter to 94 tonnes, after reaching record highs in the previous quarter.
According to Motilal Oswal Financial Services Ltd (MOFSL), the higher prices of gold since the start of 2022 have deterred buyers.
“Since February 2022, gold prices witnessed a sharp uptick buoyed by its safe-haven demand amid increased risk-aversion owing to geopolitical tensions, surging inflation and concerns over slowing growth amid supply-chain disruptions. Depreciation of the rupee vis-à-vis the dollar also boosted domestic prices to some extent," said Dhaval Kapadia, director, managed portfolios, Morningstar Investment Adviser India.
Ghazal Jain, associate fund manager–alternative investments, Quantum AMC, believes that for now, international gold prices will continue to move in a broad range as investors struggle to determine which factor has bigger implications for the metal.
“The key factors to look at are sky-high inflation, potential recession, and other geopolitical and economic repercussions of the Russia-Ukraine war or higher yields and stronger dollar due to the monetary tightening by the US Federal Reserve," Jain said.
Experts are also of the opinion that inflationary pressures are not expected to come down soon. “This may lead to underperformance of equity assets and diversion of funds to gold assets. Thus, gold which has given about 17% annualized return in the last three years is expected to shine further," said Swapnil Bhaskar, head of Strategy at Niyo.
The precious metal is currently trading at around ₹51,000 level in the domestic market. As per an MOFSL note, gold prices could trade in a broad range, with critical support at ₹50,000 followed by ₹48,000 and ₹46,500, while rallies on upside towards ₹ 55,000 would be opportunities to exit long positions.
Agriculture also plays a significant role in driving demand for gold. Skymet has forecast a normal monsoon this year, which is bound to help agriculture and boost rural demand.
Somasundaram PR, regional CEO-India at WGC, says economic growth combined with inflationary expectations is poised to bolster gold purchase this festive season but “price volatility will act as a headwind".
Yet, financial experts suggest having around 5-10% of one portfolio in gold as it acts as a cushion in times of economic crisis.
“Valuations play an important role while entering any asset class, as lower valuations reduce the risk of drawdowns and improve upside potential and vice-versa. Hence, one should look to build an allocation in gold in a staggered manner over time," said Morningstar India’s Kapadia.
Depending on their needs, people can invest in physical gold, digital gold, sovereign gold bonds (SGBs) or gold exchange-traded funds (ETFs).
Niyo’s Bhaskar suggests that SGBs, gold ETFs or mutual funds are a better option as storing physical gold is difficult and there is trust deficit between buyers and sellers.
“If we look at the last five to eight years, gold has shown a positive growth trend. And as we are aware, gold is a long-term asset and investors should not be worried about it in the short run. It is suggested to stay invested in gold, and one can make an investment ignoring the market timing when investing for the long term," said Priti Rathi Gupta, founder, LXME, a financial platform for women.
