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Gold near Rs 50,000. Does it make sense to invest now?

, ET Online|
Last Updated: Jun 28, 2020, 09.06 PM IST
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Summary While global uncertainties may be keeping gold up at the moment, its formidable track record makes a strong case for investments in gold, say fund managers.

Reuters
Gold-1---reuters
Gold prices hit a record high of Rs 48,589 for 10 grams on Wednesday. The yellow metal is likely to shine more due to the uncertainties in the global economy because of the coronavirus pandemic. Gold mutual funds have delivered an eye-popping 40.39% return in one year, beating all the other asset classes and categories.

“The IMF slashed its 2020 global output forecasts further as it sees deeper and wider damage from the pandemic than first thought. IMF sees world economy shrinking 4.9% on 2020 from previous estimates of -3% thereby weakening the overall market sentiment. This is why gold is up,” says Navneet Damani, VP – Commodities Research, Motilal Oswal Financial Services.

While global uncertainties may be keeping gold up at the moment, its formidable track record makes a strong case for investments in gold, say fund managers. Vikram Dhawan, Head Commodities and Fund Manager, Nippon India Mutual Fund, says that the strong track record of gold over the last decade makes it a good investment even at these levels.

“Gold has seen very less depreciation in the last one decade. Gold funds as an asset class have got no default risk, no credit risk. Long term inflation in India has been 7-8% and gold has given equivalent returns. So it has proved its worth over the years and hence we are seeing buying and inflows,” says Vikram Dhawan.

However, experts believe that gold might be volatile in the coming days. After hitting an over 7-1/2-year high earlier on Wednesday, gold came off the highs due to a selloff. “Investors are selling the precious metal along with other asset classes as a rise in global coronavirus cases led a flight to cash. Broader trend on COMEX could be in the range of $1750-1778 and on domestic front prices could hover in the range of Rs 47,950-48,300,” says Navneet Damani.

Experts believe that till the time there is no clarity on the pandemic going away and US elections, gold will have benefit of doubt. Data suggests that in 2001 and 2008, gold was the first among asset classes to bounce back after the economic crisis. Mutual fund managers have a tip for retail investors here. “In 2013, when gold hit the high of Rs 35,000/10 gram, investors who came at that time also got some returns in the long term. However, investors who staggered their bets, got double-digit returns. My advice would be to invest in gold funds via SIPs,” says Vikram Dhawan.

Dhawan says that after gold bottomed in 2001, it offered 240% returns and in 2008 it gave 170%. So, there is a lot to go in the gold rally but it is expected to be very volatile. “Don’t go overboard; allocate 10-15% to gold funds or ETFs. If you have gold funds, keep investing via SIPs. If one asset class is doing well, you don’t have to put all your money in that. Also, it is very important to have cash in the current scenario, don’t play tactical bets on your contingency fund,” says Gaurav Monga, Director, PXG Consultants.


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