The shine is off gold for some time. And retail investors would be well advised if they do not buy it aggressively on Akshaya Tritiya, this Friday.
The reason: While Indian gold prices have risen by 12.3 per cent since last Akshaya Tritiya (from May 13, 2013 – April 28, 2014), the returns look good as the rupee fell and tighter supply due to import restrictions.
The rupee has depreciated from Rs 54.74 to Rs 60.65 in the same period, down 10.8 per cent. The global prices of gold per ounce are down 12.13 per cent for the same period.
At the same time, the Sensex is up 14.93 per cent and debt instruments like fixed deposits, fixed maturity plans and others have given 8-11 per cent.
The kind of run that we saw in gold prices over the last decade was triggered by factors like free flow of liquidity, low cost of money globally due to low interest rates and financial uncertainty are now changing. With the US Federal Reserve beginning to unwind and interest rates are already easing. In Europe, too, interest rates are moving up and the economic situation is returning to normal so it’s believe that gold prices may continue to suffer.
Of course, there are fears that escalation of the Ukraine crisis may lead to some rise in prices. But most see it having a limited impact and only in the short run.
Appreciation in the rupee and moderation in the current account deficit are compelling reasons for any government to reduce the import duty on gold. If that happens, gold prices will fall post elections. I am not bullish on gold for the next one year.
Since Akshaya Tritiya is an auspicious day, you could buy a coin or two. But don’t splurge on the yellow metal this time.
