Gold Rates In India: Outlook And What Is The Best Gold Investment Option Now?

Gold rates in the Indian markets are marginally bullish now. Gold is one of the most popular traditional investment instruments among Indians considering the high returns offered in the long term.

International and domestic gold market chart

The 22 carat gold rate is quoted at around Rs. 47750, while the 24 carat gold rate is quoted at around Rs. 52090/10 grams today. The Indian gold market tracks the international gold rates graph, and India Bullion and Jewellers Association (IBJA) fixes the domestic rates depending on that.

The Comex gold futures were quoted at $1850.60/oz, gaining by 0.16%, from the last trading day. Yesterday it was last quoted at $1847.60/oz. The spot gold prices were last quoted at $1855.10/oz, gaining by 0.18%, from the last trading day. The US dollar index in the spot market stood at 101.68. In India, the Mumbai Commodity Exchange (MCX) gold in June future was quoted at Rs. 50,928/10 grams, gaining by 0.11%, from the last trading day.

Gold market outlook

The gold market investors and traders were looking forward to the US, Federal Reserve policy meeting minutes to anticipate how is the central bank planning to deal with the high inflation rate. Inflation is one of the major factors that influence the commodity and equity markets. Gold, which is considered the hedge against inflation, also depends on the inflation data.

The Federal Reserve policy meeting minutes stated, "Various participants remarked on the hardship caused by elevated inflation and heightened inflation uncertainty-including by eroding American families' real incomes and wealth and by making it more difficult for businesses to make production and investment plans...All participants reaffirmed their strong commitment and determination to take the measures necessary to restore price stability. To this end, participants agreed that the Committee should expeditiously move the stance of monetary policy toward a neutral posture, through both increases in the target range for the federal funds rate and reductions in the size of the Federal Reserve's balance sheet." If the Fed again hikes the interest rate, the gold market can be under pressure further.

Best Gold Investment Option

Commenting on the best gold investment option, Vikas Singhania, CEO, TradeSmart has suggested RBI's Sovereign Gold Bond Scheme (SGB) to investors. He told Good Returns, "There are many reasons to invest in SGB. The first is the diversification of your portfolio. Gold is considered a safe haven and used to cushion the shocks in the equity market. Over the long run, gold has proved to be a reliable asset, though in terms of return it falls between equities that are high yielding and low yielding bonds. In terms of volatility, it is the reverse, bonds being less volatile than equity and gold lies between the two. SGB helps improve the return yield and brings it closer to the equity yields since they are interest-bearing. Further being in digital form, it is in electronic form and safe from any theft."

RBI notifies about SGB subscription from time to time, and the rate of SGB is declared by the central bank before every new tranche. The maturity of an SGB is 8 years, but as an investor, you can choose to exit from the 5th year. Apart from buying the bond directly from the RBI, you can also buy it from the secondary market. However, Singhania added, "Unless there is a need for the money that is invested in SGB it makes little sense to redeem the bond. Timing the market and trying to exit near the top is a wasteful exercise. It is better to stay invested in these interest-bearing gold bonds."

Benefits of SGB

SGB is one of the safest gold investment options. RBI, on behalf of the union government, issues the bonds, and these are assured by the central bank of India. SGB is a digital gold investment opportunity, hence, this high purity gold investment comes without the hazards of storage costs. Additionally, you will also be able to avoid the making charges which one needs to pay in case of gold coins or gold ornaments. However, the most significant and unique benefit of SGB is the interest rate paid by the RBI. The investors are compensated at a fixed interest rate of 2.50% per annum, which is payable semi-annually, on the nominal value.

The bonds can also be used as collateral for loans. The loan-to-value (LTV) ratio is to be set equal to the ordinary gold loan mandated by the RBI from time to time. The redemption price of SGB will be in INR, based on the simple average closing price of gold of 999 purity of the previous 3 working days, as fixed by the IBJA.