Take a staggered approach to buy sovereign gold bonds
The Indian government released its second tranche of sovereign gold bonds at a price of ₹5,873/gm with 8 year tenure.
The tranche opened on September 11 and will close on September 15.
Gold prices are expected to remain range-bound in the near term, but a hazy macroeconomic picture offers tailwinds for growth, say analysts.
Investors must buy on dips to accumulate the risk-reducing role in uncertain times, analysts say
Gold prices have been rising for most of 2023 with a few dips since March. As the yellow metal’s value oscillated between increased risk aversion and higher opportunity cost of holding gold and US economic resilience
— experts advise investors to remain strong on gold and buy on dips.
The Indian government has released its second tranche of 2023’s sovereign gold
bonds at a price of ₹5,873 per gram (effective after ₹50 digital
payment discount) with an eight year tenure. For those intending to go long on
gold, this is a good opportunity, say analysts, as Monday’s prices hovered at
around ₹60,000 per 10 gms.
“These bonds offer annual returns of 2.5%, which serve to balance their
portfolio over time. However, investors are encouraged to adopt a staggered
approach when acquiring sovereign bonds. By doing so, they can accumulate gold
at varying price points,” Jateen Trivedi, VP of research at LKP Securities told
Business Insider India.
While the government assures the holding of the grammage in gold, its returns
depend upon the prevailing gold price of time. On redemption, capital gains are
not charged on these bonds to the investor — irrespective of the quantum of
gains earned by the investor.
If the bonds are sold in the secondary market, they will either be charged short-term
or long-term capital gains tax as per the time sold. Trivedi says that
sovereign gold bond investors who purchased bonds at higher rates can add
further in new issues. The tranche opened on September 11 and will close on
September 15.
Range-bound in the near term
International gold prices have been on a backfoot for most of August. But they
had had a headwind in the form of US 10-year inflation-protected treasuries
which touched 2% for the first time since the 2008 financial crisis starting the
month at 1.6%, said Quantum Mutual Fund in its September outlook.
“Long term US treasury yields declined on comments from a host of Federal
Reserve officials. They signalled a pause in the central bank rate hike cycle,”
said a report by ICICI Securities. As interest rates harden, gold prices will
rise as a safety bet, and if they remain steady or rate cuts come into the
picture, they would fall.
In the near term, analysts believe that multiple macroeconomic factors might
keep a lid on prices and remain rangebound for the foreseeable future till
clarity emerges on the global growth and inflation fronts.
“Investors can use a buy on dips strategy to build a 15-20% allocation to gold
which can play a risk-reducing role during the current macroeconomic and
geopolitical uncertainty as well as enhance returns in case of a
growth setback where the Fed is forced to cut rates even while inflation is high,” said Ghazal Jain, fund manager of alternative investments, Quantum Mutual Fund.
With or without interest rate movements, the US economy has been on a hard path
as pandemic era savings are dwindling and rising credit card debt. Gold’s shine
remains high as a safe bet as few analysts have chosen to change their annual
outlook on gold prices.
Source: https://www.businessinsider.in