Gold prices have recently touched record highs at Rs 38,450 per 10 gm on the back of economic uncertainties around the world. Whether you attribute the recent gains in gold prices to the debacle in Argentina, the volatile stock markets in India, the inverted yield curve in the US, the Hong Kong unrest or the China-US trade tariff war, the bottom line is simple—gold prices are showing a bullish uptrend. It is a known fact that gold can be very challenging to value as the future price direction is quite hard to predict. You see, gold is definitely not a productive asset as it is not linked to a business that generates profits and makes us arrive at an appropriate valuation. Neither does it pay out a dividend that would make us arrive at a suitable market value or price. In fact, the value of gold is entirely derivative and linked to external influences like the strength of the US dollar, health of the stock market, level of interest rates and of course investor sentiment.
When it comes to gold and today’s investment markets, it becomes quite difficult to map the short term price movements of gold prices. But as per historical trends it appears that gold prices are on the move (potentially a bigger move) over the longer term investment horizon. In our column on 31 March 2019, we had written about the impending “Inverted Yield Curve” in the US and the potential fall in long term US fixed income securities. Also about foreign portfolio investors turning bearish on Indian equities and selling thereof. With stock markets not doing well and expected to be volatile during the next few months on the back of domestic and international factors, Indian investors can park a small percentage of their savings in gold bonds. Instead of buying physical gold and keeping it in a bank locker and paying unnecessary charges on it every year, it would be prudent and wise to buy Sovereign Gold Bonds, Tranche 2019 Series IV scheduled to open for subscription on 9 September 2019 from Government of India and get 2.50% interest per annum, payable semi annually. Even successful money managers around the globe are suggesting investors to invest in gold to safeguard their wealth and earn a reasonable capital appreciation over the next few years.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.