Does It Make Sense To Invest In Gold Now?

Despite the auspicious day of Ugadi or Gudi Padwa, which generally sees a lot of gold buying and the gold price further surges, yesterday it was dampened. The gold prices fell as the festival day failed to keep-up with the festive fervour.

Gold prices corrected on Wednesday, it ended to Rs 54,200 per 10 garm of 22k gold, while the gold price for 24k was at Rs 59,130 per 10 gram. But on Wednesday night US Fed increased interest rate by 25 bps in line with market expectations. This further however did boost the gold rates in the international market.

The Fed rates hike slowly is showing the signs of Gold prices going up again. It opened up higher by 600 Rs to Rs 54,800 for 22 Carat Gold Price Per 10 Gram and up by Rs 650 to Rs 59,780 for 24 Carat Gold Price Per 10Gram.

As some members of the Fed committee mentioned that they view the recent turbulence in the banking system could add to financial tightening. Mr Powel further said that some additional policy firming may be appropriate, which is a deviation from the usual remark that ongoing rise would be in the target range to be appropriate. Some of the experts are of the view that the stance is dovish.

Some sections of the bonds and dollar were hit, thus creating uncertainty in terms of yield movement, this has made gold favoured as the respite for the safe haven. Even the market is recovering from the recent Adani and the banking crisis and it is looking forward to upcoming Hindenburg report.

Last week even the ECB decided to raise its interest rates by a further 50 basis points, to control the inflation, this also has impacted the gold rates.

So is it a good time to invest in gold at such levels?

In wake of recent turbulence in credit market and inflationary pressure looming gold has istorically shown its resilience to act as a long term hedge. Even central banks do increase the gold holdings as part of their reserves when ever the economy is under pressure.

Thus, having gold in the portfolio, when there are major headwinds in play can safeguard the investors from major fallouts in the portfolio. There are multiple options to invest in gold to add to your portfolio; exchange traded funds, sovereign gold bonds or even multi asset allocation funds that have gold holdings.

Investing in gold through non physical format will help in easy liquidity and will not face storage problems or will not have to worry about theft. Ideally as a thumb rule, gold holdings in the portfolio should be in a proportion of 5 to 10% of the overall portfolio, to serve as a hedge and safe haven.

Besides, In term of tax also will be same as physical gold, as per income tax if the gold investment is sold before 3-years. But if you sell your gold ETFs units after 3-years, 20% long term capital gains tax with indexation, i.e. adjusting for inflation on capital gains is applicable.

If you have invested in sovereign gold bonds, then if you hold it till the term of 8 years, at maturity you get exemption from the capital gains tax on redemption. But before maturity, long term capital gains tax is applicable and it will be at 20% with indexation.