Gold is lagging behind; Here’s how to play it this festive season

With the festive season approaching, experts suggest that the yellow metal will make up for its losses.

Recovery has started. The prices have been increasing continuously for the last few days.

gold price in 2021

The demand for gold is strong during the wedding and festive season as this period is considered the best time to buy gold in India.

But now the trend has changed. After the outbreak of the pandemic, there has been a steady shift towards digital gold.

People are buying digital gold more than physical.

As the online gold sales witnessed a significant increase after the pandemic, traditional jewelers have gone online.

They have already started selling gold online for less than ₹100 to increase sales

Shares associated with the online business of selling gold have risen. Take the example of one such stock – Thangamayil Jewellery.

Thangamayil Jewelery is a two decade old jewelery firm based in Tamil Nadu. It has 33 stores and is an online business selling gold, silver and diamonds.

from the rise of ₹In March 2020, the stock has reached a high of 220 ₹Today 1,400.

As long as crude oil prices continue to rise, the rupee remains weak against the US dollar and global inflationary concerns persist, giving support to gold prices.

There is also a possibility of a third wave of covid. People who are skeptical about the third wave are also investing in gold as a hedge.

Besides, gold is still locked ₹8,000 away from its all-time high. This provides a margin of safety.

In such a situation, this is an attractive opportunity to buy gold in this festive season.

The question is whether it will translate into a good investment. It totally depends on how much you buy and how long you expect it to last.

For example, people may invest from a short-term perspective for a month or two expecting 8%-10% return. After all, experts are claiming that the prices will go up this festive season.

but the general trend has been long term investment. This is because gold has delivered a lot over a long period of time.

Gold shows luster in the long run

The traditional way is to hold gold in physical form in the form of jewelery or coins or rods. But it comes at a cost.

The unconventional way of buying gold provides the convenience of investing in gold in a non-physical form and offers a lot of benefits.

Know here smart ways to invest in gold…

Gold Exchange Traded Fund (Gold ETF)

gold etf There are open-ended exchange-traded funds (offered by mutual funds) that track the price of gold.

Each unit of the ETF represents ownership of the underlying gold asset. Each unit in a Gold ETF is equal to 1 gram of gold (some mutual fund houses also offer 1 unit for 0.5 grams of gold).

When you buy a gold ETF, you get a contract that indicates your ownership in gold equal to the rupee amount of your investment.

The investment objective is to generate returns roughly commensurate with the domestic price of gold.

You can buy units of Gold ETFs on the stock exchanges. A demat account and share trading account is required.

Gold ETFs are already gaining traction. they attracted ₹4.5 billion investment in September 2021. It just. faster than ₹240 million were recorded in the last month.

While gold ETFs saw net withdrawals in July ₹6.2 billion.

Inflows may continue in the coming months as strong demand is expected during the festive season.

gold savings fund

It is an open-ended fund of funds scheme (offered by mutual fund houses), which invests its corpus in an underlying gold ETF, which benchmarks its performance against physical gold prices.

Thus, the objective of the investment is to generate returns that are in line with the returns generated by the underlying Gold ETF.

The application for purchase will have to be made to the respective mutual fund house. A demat account is not necessary. The allotted units appear in your mutual fund account statement. Units are bought/sold at the NAV declared by the mutual fund house.

Investing in Gold Savings Fund can be done in lump sum or through SIP (Systematic Investment Plan).

Another way you can play gold this season is by investing in Sovereign Gold Bonds (SGBs).

SGBs are government securities that are denominated in grams of gold. They are an alternative to holding physical gold.

Investing in gold the ‘smart way’

Investing in paper form is the most suitable option and a good proxy for gold prices.

The primary benefit you will gain from holding gold in a non-physical form is that you will eliminate the physical hold of gold. So you will not incur holding cost.

You also don’t have to worry about the quality of the gold you keep.

So this festive season, instead of buying physical gold, you can consider investing in gold the ‘smart way’.

Equitymaster’s take on gold

Gold has been one of the most stable assets from a volatility perspective during the pandemic and its subsequent rebound, which lends added credibility to its role as a portfolio diversifier.

However, like any investment, if you are planning to invest in gold, it is important to consider the investment time frame. Also, study the market to understand the expected performance of the market.

Gold is not a foolproof investment. Like stocks and bonds, its price fluctuates based on many factors in the global economy.

Gold’s increased sensitivity to changes in interest rates means that any change in sentiment could result in short-term headwinds.

On the other hand, concerns about inflation and currency depreciation could prove to be a tailwind supporting gold prices in the coming months.

Happy Gold Investment!

This article is syndicated from equitymaster.com