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Don’t binge on gold on Akshaya Tritiya; rising dollar, import duty removal may soften prices further |
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MUMBAI: Investors who bought substantial amounts of gold on Akshaya Tritiya in 2005 took a good call. Assuming they still have the stuff, that amounts to annualised gains of 15.9%, just a little lower than the 16.5% delivered by the Sensex during the same period.
But the sheen has worn off in recent years. Gold bought on Akshaya Tritiya in 2014 has lost more than 11% while the annualised loss since 2012 stands at 2.6%. So the question is this: On April 21, which is when the auspicious day falls this year, how much gold should you buy? Although a softening of prices has led to a 20% surge in gold jewellery demand ahead of Akshaya Tritiya this year, we suggest you make only a token purchase on Tuesday and hold on for a few months more if possible. That's because the outlook for gold is clouded with uncertainty and some analysts believe there is more pain in store.
The key factor working against gold right now is the possibility of the US Federal Reserve hardening its stance.
"Gold will suffer when the Fed starts hiking rates. Low inflation and rising interest rates are bad news for the metal," said Kishore Narne, associate director, Motilal Oswal Commodities Broker.
CP Krishnan, wholetime director at Geojit Comtrade, agreed. "The dollar will rise if the Fed hikes interest rates. So the outlook for gold is likely to remain bearish for the next one year."
Analysts expect global gold prices to drop another 10% to around $1,080 per troy ounce (about Rs 66,960 per 31.1 gm) by December this year.
The other negative is demand. India and China are the largest consumers of gold in the world but while sales have been flat in the former, that in the latter witnessed a steep decline in 2014. "There has been no increase in the demand for gold in the past few years," said Hasmukh Bafna, president, Gold Chains & Jewellery Wholesalers Welfare Association. In India, this stagnation can be attributed to the quantitative restrictions imposed by the government on gold imports.
There are other reasons as well. Last year, the budget made it mandatory for the income tax permanent account number, or PAN, to be provided for gold purchases of more than Rs 2 lakh. This year's budget has reduced the threshold to Rs 1 lakh. Widespread agricultural losses due to unseasonal rains could further dampen sales. Industry though denied this to be the case. "There is not much impact due to the PAN restrictions," said Prithviraj Kothari, vice-president, India Bullion and Jewellers Association.
To be sure, the World Gold Council exudes optimism. "Indian and Chinese demand estimates for 2015 are 900-1,000 tonnes and there is no need to change that estimate," said PR Somasundaram, managing director, India, World Gold Council.
The biggest threat to domestic gold prices comes from government policy. Until now, domestic gold prices have not followed the global downtrend because of the 10% import duty on the metal. If this is removed, domestic prices would crash. "The 10% import duty on gold is very high and that must go. We expect some reduction in the July-September quarter if the rupee remains stable," Somasundaram said.
This means gold is likely to see an intermediate bottom by the end of 2015. "End of this year or beginning of next year should be a good time to buy gold with a three-year view. So, the long-term gold investors should wait till then and divert a portion of their equity and debt portfolio to gold later," Narne said.
Source : economictimes.indiatimes.com
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