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Gold shines in 2019; Axis Securities sees yellow metal touching Rs 39,500/10 gm by March

December 13
08:57 2019

It has been a year for gold bugs, with the yellow metal surging over 19 percent year-to-date, as against almost 12 percent returns for the bellwether Sensex.

It touched a high of Rs 40,000/10 gram by October-end but has since retreated to the Rs 38,000 zones. In dollar terms, it hit a high of $ 1,565 per troy ounce in August-end.

So, what does 2020 have in store for gold?

Sunilkumar Katke, Head – Commodities & Currency, Axis Securities, sees one of the world’s oldest currency forms touching around Rs 39,500 per 10 gm by March 2020.

But, what about investors who are feeling left out by the huge run or were waiting on the sidelines for a price correction to enter?

Investors have reasons to cheer as Katke feels prices may correct by Rs 700-1,000/10 gm by December-end. “In the short term, precious metals are likely to take a cue from the US-China trade deal. The trade war is hurting both countries, especially China, with export data emerging out of there shrinking for the fourth month in a row.”

In dollar terms, he sees gold heading toward $ 1,430-1,440/troy oz, with $ 1,480 acting as strong resistance.

For retail investors, gold exchange traded funds (ETFs) or sovereign gold bonds (SGBs) are among the simplest options available to buy gold digitally without worrying about the quality, premium charged by jewellers/banks, risk of being stolen or hassle of resale in physical markets.

He suggests investors create a systematic investment plan and accumulate Gold ETF units/bonds. “Even though both gold ETFs and sovereign bonds are good alternatives to physical gold, the former comes with more flexibility as there is no lock-in period when compared to the five-year timeframe in SGBs and is more liquidity,” he explained.

Even in the case of those looking at capital gains, gold ETFs/SGBs score higher than buying physical gold as they are more cost effective and safe.

Sophisticated investors can opt for the derivatives route to multiply their returns via calculated margin. Let’s elaborate this with an example. Investor A buys a 10-gram gold ETF valued at Rs 38,000 by investing the full amount and sells the same at Rs 39,000 after a month. For investor A, the return on investment will be 2.63 percent. Investor B buys 10 gram of gold on a derivative platform by investing Rs 19,000 (at 50 percent margin) and sells the same at Rs 39,000 after a month. For investor B, the RoI will be 5.26 percent whereas the absolute risk remains the same in both scenarios.

Those investors seeking higher returns by taking on additional risks could look to invest in gold mining funds.

But, given the huge rally, do these funds merit investor’s attention at current levels? Katke feels one can still be a cautious buyer as the price trend in gold continues to remain bullish. “Investors can expect gold prices to touch Rs 42,000 in a year, based on current fundamentals and ever increasing demand from global central banks and ETFs,” he said.

Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.Are you happy with your current monthly income? Do you know you can double it without working extra hours or asking for a raise? Rahul Shah, one of the India’s leading expert on wealth building, has created a strategy which makes it possible… in just a short few years. You can know his secrets in his FREE video series airing between 12th to 17th December. You can reserve your free seat here.

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