3 Ways To Play The Gold Theme As It Will Bounce Back

As we write gold prices in Mumbai's bullion market have held steady at Rs. 49846 per 10 gm and has fallen 3.44% in the week to September 25, 2020. Internationally too gold witnessed a sharp sell-off triggered primarily by surging dollar and in fact posted its biggest weekly decline since March with losses of as much as 4.4 percent.

Ways To Play The Gold Theme As It Will Bounce Back

Now even as the retail investor class has turned cautious and is skeptic about gold's price outlook going ahead, experts are of the view that factors that pushed the yellow-metal to its recent high (Rs. 56,200 on the MCX and @2072 per ounce internationally hit in the first week of August 2020) are still prevailing so demand for gold as a safe-haven will continue until the global economy shows strong signs of recovery from the Covid 19 pandemic fall-out.

Some of the factors that support likely upside in bullion going ahead are:

1. Global central banks are unveiling stimulus packages to counter the slowdown which supports gold run.

2. Interest rates have also been maintained at near-zero levels or in the negative zone to stimulate growth.

3. Low US 10-year treasury bond yield which is currently less than 1% and until it climbs back to over 2.5%, bullish trend is seen for both gold and silver.

4. US-China trade tensions still persist

5. Second wave of coronavirus being experienced in some of the European nations and as a result global economic activity will take time to recover. "We see a U-shaped recovery rather than a V-shaped one. So gold prices could continue to move higher in the next 4-6 months' time frame," said Sriram Iyer, Senior Research Analyst at Reliance Securities.

6. High liquidity globally which is also being channelised into gold through investment in Gold ETFs.

So, if you as a new-age retail investor want to participate in the rally in gold going ahead, here are suggested some other options besides the physical buying of the bullion:

1. Gold Accumulation Plans (GAP):

These plans facilitate digital buying of gold and currently there are 2 options

1. Digital gold that can be bought on the mobile wallet platform such as Paytm, Phonepe, Google Pay etc.

2. Gold Rush programme offered by the Stock Holding Corporation of India.

These gold buying schemes are available either in association with MMTC - PAMP or SafeGold or both. Under the plan customers can buy gold of 24 Karat or 999 fineness gold. Though the minimum value for which gold can be purchased on the 2 platform varies say for instance under Gold Rush customers can buy gold for a minimum of Rs.1000 and in multiples of Rs. 100 thereafter while on Paytm they can purchase digital gold for as low as Rs. 1.

Nonetheless, demat account is required for making digital purchase of gold. And of late buying in gold via this mode has gained momentum owing to the convenience.

2. Gold Finance companies:

One can also consider investing in gold financing companies which since the Covid 19 outbreak had a sharp rally. From the March lows, stock of Muthoot Finance has jumped almost 128% to now scale level of above Rs. 1000. Manappuram Finance scrip has also doubled in price from its March lows.

"In today's environment where there is stress in the economy, many micro businessmen and households would resort to gold finance to tide over the difficult times. This coupled with higher prices benefits gold finance companies like Muthoot Finance and Malappuram Finance," Rusmik Oza, Executive Vice President, Head of Fundamental Research at Kotak Securities told a leading online money portal.

Further as gold loans dominate product mix of these companies and gold loan AUMs continue to soar amid the pandemic, prospects of these companies seem bright going forward too which can be tapped by investing in shares of these gold finance companies.

3. Gold ETFs:

Though this gold-backed financial investment is not popular in India, among all ETFs after only Motilal Oswal NASDAQ 100 ETF, gold ETFs from different fund houses top the returns chart with returns of over 25% in the last one year. Herein one can take position in gold in small units and get the advantage of averaging out. Expense ratio and some other factors though need to be considered while investing in Gold ETFs. Importantly, it is to be noted that some of the fund houses do not completely invest in physical gold, so be mindful of making the right choice.

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