Gold May Lose Sheen!

Buy the yellow metal at dips or as a long-term investment option, besides keeping a close watch on global factors.

- Tanvi Varma

Over the past one year, gold has regained its lost shimmer. Between November 18, 2015, and November 17, 2016, gold exchange traded funds (ETFs) returned 16 per cent, outperforming other asset classes. In comparison, gold ETFs witnessed a negative return of 1 per cent over three-year and five-year periods.

In the domestic market, gold prices moved up from Rs 25,000 per 10 gm to Rs 31,000 during the period. In dollar terms the prices moved up from $1,100 to $1,300 per ounce. There were a variety of factors contributing to the rise – from a fall in global equities and concerns over economic growth to in flows in bullion funds that led to buyers’ interest for gold on dips. For the uninitiated, the yellow metal’s bull-run ended in 2013, after a 12-year rally. Since then, it has lost 28 per cent of its value. And, experts believe gold prices could fall further in 2017.

GLOBAL CONCERNS

Spot prices of gold, globally, have already corrected by about $100 from $1,337 on November 9 to $1,230 per ounce at present. In India, MCX gold futures have fallen from Rs 31,400 per 10 gm to Rs 29,300 during the period.

“Following the recent rise in global bond yields, especially in the US, and some unwinding of the carry trade (where people borrowed at a low interest rates in the US and invested in high-yielding assets), we are seeing corrections in gold prices,” says Lakshmi Iyer, Chief Investment Officer, Debt, and Head of Products, Kotak Mahindra AMC.