The occasion is considered auspicious by many to purchase gold, silver and other metals in India — the world’s second-biggest bullion consumer. This will be the second year in a row that pandemic-related restrictions will hurt jewellery sales on the otherwise busiest business day in bullion trade.
Analysts and wealth advisers say those eager to make bullion purchases this Akshaya Tritiya can go for paper gold options like sovereign gold bonds, gold futures, exchange-traded funds, fund of funds or digital gold.
Commodities analysts say there is a case for investing in gold at this stage. “The combination of low interest rates, a slowdown in the dollar appreciation and the second wave of Covid-19 in many countries will continue to make gold attractive for investors,” said Sugandha Sachdeva, VP – Commodity and Currency Research, Religare Broking.
One major downside risk for gold would be the expectation that the US central bank could start tapering policy accommodation policy sooner than later as the world’s largest economy is witnessing rapid recovery from the Covid-induced recession, she said.
Gold prices have been rising again after giving up one-fifth of its value since it scaled the peak price above Rs 57,000 per 10 gm in India in August 2020. In Calendar 2021 so far, riskier assets have outshone the yellow metal, with the dollar rebounding from a three-year high and US yields rising to its highest level in a year.
The latest pickup in gold price can be attributed to a pause in treasury yields and weakness in the Dollar Index since April. The US Fed believes that labour market slack would prevent the economy from overheating and it would continue with its ultra-loose monetary policy stance for some time to come.
“This will act be a headwind for the Dollar Index and may provide a boost to the yellow metal,” Religare said in a report.
From a longer-term perspective, there is room for domestic gold price to head toward Rs 60,000 ($2,270/oz) level in a low interest rate environment, continued fiscal support, inflation overshooting expectations and currency debasement, Sachdeva added.
How to bet on gold in times of Covid
Wealth planners say the overall ask for metals, especially bullion, may shift to demat form to some extent on account of the restrictions to curb the ongoing spread of Covid-19.
“Popularity, availability, flexibility, non-oxidation quality etc. make gold more attractive. Along with gold, silver has also been doing really well this past year. But to a large extent, the benefit out of silver as an investment was not transferred to the common man, because of their relatively lesser access to a full-fledged commodity market and limited knowledge about various metals,” Jeevan Kumar, Head of Investment Advisory at Geojit Financial Services, told ETMarkets.
Many of them vouch for sovereign gold bonds (SGB) and gold-linked ETFs or gold funds as effective instruments to diversify a portfolio with 10-15 per cent allocation to the yellow metal.
The first tranche of the SGB 2021-22 scheme, in which the RBI issues bonds liked with the market price of gold on behalf of government, will open for subscription for five days starting May 17. These bonds not only provide gold-linked returns, but also interest on investment, and they come with a lock-in period of eight years with the option to exit prematurely after the first five years.
“Gold ETFs and sovereign gold bonds can be ideal this Akshaya Tritiya for investors who want to track and bet on the actual price of gold in real time. In certain periods like the current global economic growth uncertainty, investors see gold as the ultimate safe haven,” said Rahul Gupta, Head Of Research- Currency,
He thinks the US Fed would continue to reiterate its dovish stance and not hint at tapering anytime soon, which is going to be positive for gold. “Inflation in the US is skyrocketing on the back of expansionary monetary and fiscal policies, and that should help gold,” he said.
ETF vs digital gold: Which is better?
“Both gold ETFs and digital gold can be good options. If an investor is seeking to convert it to physical gold at a later stage, digital gold is the best option. If the investor is only looking for ease of transaction and liquidity, gold ETF is the best route,” said Jeevan Kumar, head of investment advisory at Geojit Financial Services.
Not the only game in town
While gold is likely to remain the most preferred precious metal for the time being, some even see newer avenues to play the precious metal theme.
The recent rally in silver and palladium prices, and even in copper among industrial material, has caught the attention of market participants.
Silver & Copper
NS Ramaswamy, Head of Commodities at Ventura Securities, says silver is his most preferred precious metal at this point. “There is an increase in demand for industrial metals. The shift to electric vehicles can be a major trigger for it,” he said.
For Akshaya Tritiya, he would have a bias towards gold, and recommends going long on bullion in combination (gold and silver). He also said: “Doctor copper looks good as an alternative to remain on the long side.”
As gold trades above the 50-day moving average of Rs 45,900/10gm ($1,740/oz), one can expect the price to show strength in the intermediate term. There is firm support at Rs 43,200 ($1,680/oz) level, said Sachdeva of Religare Broking.
On the higher side, the price could rise towards Rs 48,500 initially, which would be an immediate hurdle ahead. “Above that, the yellow metal is expected to swing towards Rs 52,000 levels in the medium term,” she said.
“Investors/traders can buy July gold mini contract on dips near Rs 46,500-46,000 for a target of Rs 52,000 with a stop loss at Rs 43,000.”
Gold made a cup-and-handle chart pattern on the daily chart, which suggests a short-term target of Rs 49,700, said Kshitij Purohit, Lead Commodities and Currency at CapiatlaVia Global Research. For the medium term, investors can gradually add gold in the coming months for a target of Rs 51,700, he said.
Ramaswamy of Ventura expects price levels between Rs 90,000 to Rs 95,000 per kg in silver in the short to medium term.