With Indian financial markets going through somewhat of a slump currently, many prudent investors are turning their attention to gold as a means of short-term or medium term investments. The equity markets are not at their best and the price of gold has been high at 4.85 concurrently since the very beginning of this January with the untimely drop in rupee and the increase of prices globally; makes the favorite yellow metal for Indians a right fit in terms of short-term or mid-term investments.
Analyst at Geofyn Comtrade, Hareesh V revealed, that volumes on MCX have grown 45 percent in comparison to last week of December.
But he further added that these increments volume do not suggest any long-term investment and is probably a shot at short-term earnings due to the slump in the equities market from gold. There may not be any long-term interest in gold till the Chinese economy revives. The price hike curve of gold reveals that the price of this yellow metal increased from the lowly INR 24,740 per 10 grams to INR 26,123 per 10 grams when the prices were compared 17 December, 2015 with that 7 January, 2016. This was the growth in the domestic markets, but the international gold market saw an increase in prices of USD 1,112 per troy ounce of gold from 8 January, 2016 than the previous year’s numbers of USD 1,045.85 as of December. But the demands for gold bars and coins in the physical markets still remain to be subdued as many retail investors feel that buying physical gold of hefty amounts will block their funds and reduce liquidity, which they are not keen on currently.
As per the Director of All India Gems and Jewellery Trade Fair, Bachhraj Bamalwa, presently the retail investors are taking some time off to wait and watch for the developments the upcoming budget may bring. Many are of the view that the Modi government may bring down the prices of import duty on gold and thus, will bring down the price of this precious metal within the domestic markets. So, many are only testing the waters with short to mid-term investments and are not yet keen on making long-term commitments to gold investments.
We suggest however, that instead of going for the physical metal, try to get some shine off gold bonds. Why we say so? Because we believe that if imports are fueled higher due to increase in demands, then there will again be increased pressure on India’s current deficit. That will not work for the best for our nation’s economy. Also taking into account the long-term perspective, equities perform much better in yielding much higher returns than gold. We are in agreement with the government and would also discourage people from holding physical gold and want to encourage them to invest in other investment instruments with similar benefits and stability. The sovereign gold bond schemes which are plausible investment options with similar benefits as of physical gold but only with higher flexibility should be marketed more aggressively by the financial authorities as they offer a dualistic advantage from an investment point of view.