2022 was a year where gold actually shined quite brightly with respect to the other asset classes. Do you believe that 2023 can be a similar or even better year when it comes to returns and if yes then why do you feel so?
First off all gold in dollar terms this year is just up by 1% in the year 2022. Now before I give my rationale just imagine what will happen if dollar surges this year in dollar terms what kind of return you can get. We are right now in that kind of scenario where we are in an unchartered territory when it comes to the geopolitical conflict between Russia, Ukraine, US, Taiwan, China.
So that is one of the reason why gold is shining well. Second reason is the uncertainty regarding the monetary policy adopted by the western central banks. We do not know till when they can tighten and when they will stop or when they will ease. So this remains a big question and it creates a lot of uncertainty and volatility in the market.
The third thing simultaneously which is happening is the majority of the trade between Russia and China is taking place in their own domestic currency. So the circulation of dollar in the trade is declining. This may be the trend going forward if Russia is dealing with other countries they will ask for the payment in rouble and vice versa so it looks that the dollar index is going to crack going forward during the year 2023 and that will trigger a major rally in prices of gold.
Gold has given good returns in India because of weaker currency that we have seen which depreciated from 79 to almost 83 this year and also the hike in duty.
The gold duty in India has been hiked in the year 2022 so we have not seen the real returns coming out of real bull running gold right now and that is what has started from last two months and going forward in 2023 we are going to see a major bull run in gold from here.
I think it is going to go quite sharply during the second half of this year and I am expecting major fireworks when it comes to the returns. So conservatively 10% return is what I am expecting out of gold this year on Indian rupee terms and in dollar terms may be 12% to 14% return.
If bare minimum is 10% then what is the maximum number that you have because it is already hovering around that 56000 mark then may be another 10% is above 60-61 around levels but going ahead what is the maximum target that you have for gold this year?
It is very difficult to quantify. Generally, gold moves up at the time the dollar index has a major crack. So in the year 2021 where we saw gold giving 17% return that was a year dollar index was down from 101 to almost 89. Right now dollar index is trading at 106. So I am expecting in the second half of the year 2023 when Federal Reserve starts perhaps easing their rate because of having a control on inflation if that happens then dollar index can really go down quite sharply. Also, looking at the interest rate differential between Euro and the dollar it seems that the Euro is going to outperform this year which has been a major laggard.
So in the dollar index we have a 42% weightage of euro considering that even Euro is going to strengthen so that is one reason.
On geopolitical front we really do not know what is going to happen so right now more than investment I would use word a strategic investment. Gold is right now at that juncture that if anything goes wrong, who are the biggest buyers of gold right now, the central bank themselves are the biggest buyers of the gold they do not want to be in dollar, they do not want to be in other currency, they do not want to invest in other country’s bond, they want to hedge the risk which can arise in the financial market from gold.
So you see Russia, Turkey, India, all of the developing and even for that matter developed central banks are buying gold right now. China is buying gold because eventually when the dollar losses its value how you are going to hedge your positions, how are you going to hedge your entire portfolio so even people who are not investing in gold considering that as an option.
I think it can really shoot up to 2200-2100. It is very difficult to quantify but this is a conservative estimate what I am getting. 10% return is very conservative approach which I am following it can take place immediately also.
When actually Federal Reserve starts giving a pivot to this interest rate hike at that time it can really go berserk so $2100 is an aggressive basis target.
Let me get straight on the point and the main question that we have for all the investors you feel that gold is set for a bull run so as an investor what should be their strategy to invest in gold and what are the different options that are available because you are saying that gold should be looked upon as a investment to be done in a staggered manner so what will be your advice to go ahead investing in that manner?
Investors should hedge 15% to 18% of their portfolio with gold. For example if you are having a portfolio worth Rs 1 lakh I believe that out of that Rs 1 lakh, Rs15000 to 18000 should be invested in gold because we are living in an environment where we do not know what is going to happen going forward.
If we talk about the different instruments one can invest in gold with then the most preferred way right now is gold ETFs. Gold ETFs are one of the good ways to invest in gold market. So you can buy ETFs like you buy normal stock ETFs.
Another mode of investment is sovereign gold bonds which is offered by the Indian government and the beauty about this scheme is that when you invest in gold through sovereign gold bond you get 2.5% interest per annum.
So for example you are locked in for five years and after five years 12.5% is the interest you are going to get on the amount you have invested and apart from that the appreciation in the gold prices. So it is a wonderful way to invest in gold. The tranches on the sovereign gold bonds keep coming on the exchange.
I think people should invest in this mode as it is a really good way to encash the upside of gold market.
Third option I would say is the traditional one where you buy gold and you store it in the jewellery form or in bars and coins in your locker. So that is quite traditional and not recommended as we are in a digital world right now there are proper due diligence taking place when it comes to sovereign gold bonds, gold ETFs.
The fourth one is that you can create a long position on the commodity exchange and take a delivery from there and let the delivery be in the vault and whenever you require you take that delivery out of the vault and use it in the market or use it for the jewellery purpose or give back to the exchange by selling on exchange. So this is the last form of investment but the most preferred one I think is the sovereign gold bond.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)