Holidaying, equities and white goods may take away the sheen from gold this festive season.
Although gold will see wedding-related demand during the festive season, the yellow metal in the physical form may not be the preferred choice for people this Dhanteras and Diwali to bring prosperity to their homes, say bankers and trade analysts.
Instead, those who want to take exposure to gold may look at gold exchange-traded funds, as there is no need to worry about risk factors such as theft, purity issues, illiquidity and storage cost associated with holding the metal in the physical form.
After the pandemic, people are looking at instruments that can be sold immediately to generate cash if any emergency occurs, and gold ETFs can be sold at any time during trading hours on the exchanges.
Also, many Indians who have not been able to enjoy a holiday for over a year and half due to Covid-19 may splurge on vacations this festive season rather than using the money to buy gold as they usually do.
“As Covid restrictions are being withdrawn, people want to get out from home and go for holidays. They want to spend money on that,” said Sekhar Bhandari, president and business head of global transaction and precious metals at Kotak Mahindra Bank. “Also, the general psyche of people is changing. They would buy some white goods that they had been aiming to buy for ushering in the festive season. Moreover, 2021 is not the year of gold. It is the year of the equities. Gold has not given positive returns in 2021 and returns only drive demand.” He added: “This festive season, people will invest in holidays, equities, white goods and some portion in gold.”
Bhandari said there will be wedding-related demand this year. And, that is expected to be quite significant as many marriages have been postponed from the beginning of this year due to the second wave of Covid-19.
Bhargav Vaidya, a gold trade analyst, said it is always better to invest in sovereign gold bonds or gold ETFs. The physical gold market operates at different prices in different geographical locations. Also, the buying and selling rates are different in order to cover the liquidation and other costs that are incurred in the trading of physical gold, he pointed out.
Globally, Gold ETFs account for 35% of the total gold demand compared with 8% seen a decade ago. Retail investors in India too have been warming up to gold ETFs as can be corroborated by a three-time rise in the number of gold ETF folios in the last one year.