Known as a safe haven and a cushion against inflation, the sudden fall in gold prices has spooked investors.Down from a high of Rs 33,000 per gms in 2011 to Rs 25500 now, the yellow metal has been plummeting on the back of a sudden sell off following rumors of Cyprus offloading its gold reserves.
Cafemutual spoke to fund managers and advisors to see what they are advising their investors.
“Given the sharp decline the value of gold, one may look at staggered investments in lump sum to potentially capture the recent price correction. Near term outlook continues to be volatile and uncertain given the sharp slide in gold prices. Some more position liquidation in global markets could lead to downward pressure in prices as the momentum is broken. Also the action from some European countries would also be keenly watched. Medium term to a bit long term, we feel gold could stabilize at current levels before a decisive directional move,” says Lakshmi Iyer, Head of Fixed Income & Product at Kotak Mutual Fund.
“This seems to be an ideal time to invest in gold. Prospective buyers remain upbeat, as the upcoming marriage and festival season along with Akshaya trithyia hint at higher gold demand from Indian investors. Again price sensitive Indian investors tend to buy more physical gold/ jewellery when prices correct. Such buying will likely restrict the downfall and help gold price appreciate. More often than not, higher demand from India pulls up global gold prices. Globally, sluggish growth momentum, negative real interest rates, currency debasement, stronger physical demands of gold, Central bank’s accumulation of gold and thrust for portfolio diversification are key factors which are likely to support higher gold prices. While we encourage investors to keep accumulating gold in a systematic manner, lump sum investments may also be a good idea depending on investors risk appetite and unique circumstances.” said Hiren Chandaria, Fund Manager- Commodities, Reliance Capital Asset Management.
Chiraj Mehta, Fund Manager, Commodity, Quantum AMC says that nothing is wrong with gold as far as fundamental factors are concerned. “There is nothing fundamentally wrong with gold at this juncture and the selloff is largely due to technical reasons. Investors should take this opportunity to enter gold in a staggered manner. The Cyprus government’s gold reserve is very tiny and if there is a sell off it can be easily absorbed in emerging markets like China and India.”
As per Value Research data, the performance of gold funds has fallen 8% during a one year period. Bombay Bullion Association’s President Mohit Kamboj was quoted in media saying that gold imports are likely to fall 25% this month compared to the corresponding period last year on the fear of further fall in gold prices.
Debashish Mallick, Managing Director & CEO, IDBI Mutual Fund says that investors should not rush to redeem their gold investments. “The prices have fallen because of sudden and panic selling due to the rumors that the government of Cyprus may sell its gold reserves and other debt-laden countries may follow suit. However, Cyprus has nearly 13 tons of gold which is not a huge reserve. Whenever there is such a sudden fall there are chances of a pullback rally. Investors can continue with their current investments. We have not seen any redemption pressure in our gold fund. There is no change in fundamental factors domestically or globally which merits such a sudden fall in gold prices.”
However, advisors fear that there could be further correction in gold.
Gajendra Kothari of Etica Wealth Management says that investors can continue their existing systematic investments in gold though he is not suggesting his investors to start fresh investments in the yellow metal. “We would advise investors to put money in silver than gold but there are not enough channels to invest in silver. Investors should allocate only 25% of their investible corpus in gold. Those who are investing through SIPs in gold funds can continue.”
“India is the largest importer of gold so the prices are linked to international markets. I pulled out my client’s money from gold three months back. Based on the technical price movements, it looks like gold prices are likely to touch Rs 22000 per 10 gms. I would not advice investors to invest in gold at this juncture. There is a likelihood that investors may not make any money in gold for the next five years,” says Jayant Vidwans of Chaitanya Financial Consultancy.
Investors lapped up gold funds when the yellow metal was on a spectacular run in 2011. AMCs launched gold fund of funds to cash in on the euphoria. Currently there are 14 Gold ETFs listed on the exchanges. Assets in gold funds have risen 18% from Rs 9886 crore in March 2012 to reach Rs 11648 crore in March 2013. But the interest in gold seems to have waned off lately which is evident by the slowing inflows in the category. Net inflows in gold dropped by 61% to Rs 1414 crore in FY12 compared to Rs 3646 crore the previous year.
