While most of the popular asset classes are going through bad times, the yellow metal shines on. In fact, in the last one year, gold has given a return of more than 25% and currently trades at Rs 14,695 per 10 gm. Even gold exchange traded funds (ETFs) have appreciated substantially. Gold Gold Benchmark Exchange Traded Scheme (BeES) and Kotak Gold ETF have given more than 25% returns each in the last three months.
Even as the equity markets have taken a hit with the Sensex losing around 46% in the last one year and real estate prices also witness a correction, investors’ preference has shifted to safe havens such as gold. On an average , most of the diversified equity mutual funds have fallen and real estate developers are offering discounts. Thus gold remains the safest bet.
The appreciation in the gold prices is mainly due to its safe haven status. Says, Jayant Manglik, head commodities at Religare Commodities, "The key reason for gold to go up is lack of other investment opportunity. There is also a risk in keeping the money in currency form as most of the currencies have depreciated against one another. Moreover, most of the countries are facing liquidity problems and the currency will further depreciate if they go in for printing money."
The historical trend proves that gold prices have a positive correlation with inflation and crude oil price. It is considered as the best hedge against inflation. But in the prevailing economic condition, gold prices have moved in the reverse direction from both crude oil price and inflation.
Where crude oil prices have corrected from $146 a barrel in the last year to $41 a barrel now, gold prices have appreciated to Rs 14,695 currently from the lowest of Rs 10,653 last year. Thus while in the last year, the rising inflation rate and crude oil prices were buttressing gold, now it’s the uncertainty, which is pushing the price up.
Says, Naveen Mathur, head, Angel Commodities, "There are several factors that impact gold prices. Crude oil price and inflation are a couple of factors. But the quantum of impact of each of these factors differs depending upon the economic condition. Currently, the impact of financial and economical uncertainty is driving gold prices up." The depreciating rupee has further helped the gold price to go up as major portion of the gold is imported.
Source : Economictimes