28. Dec, 2020

Gold down 15% from August peak. Should you buy the yellow metal in 2021?

New Delhi: Gold prices have fallen over 15% since its August peak causing worry for investors who bought the yellow metal earlier this year amid a virus-induced global economic crisis. So what should investors do with their gold holding in 2021? Should they buy more or sell or hold their gold investment in 2021?

Experts say savers buying into gold in 2021 should hold the investment over a longer time horizon to get the desired levels of returns as the pace of vaccination, expected to begin early next year, gathers momentum and dims the allure of the safe-haven metal in the short run.

Financial planners say asset allocation to gold could decline in the New Year as high-net-worth individual (HNI) investors are disappointed with the fall in price and may shift to equities to benefit from a rebound in expected corporate earnings. Also, there is little signs of global inflation returning, which could have led to buying in gold as a hedge against price hike.

“You cannot keep moving from gold to equity and vice versa just based on what is performing at the moment,” the Economic Times quoted Suresh Sadagopan, founder at Ladder7 Financial Advisors as saying. “You need to invest 5-10% in gold without worrying about short-term price fluctuations. You cannot mix up gold and equities as it will bring losses for you. Gold investment should be on a 15-year time horizon,” he added.

Gold has delivered more than 25% since the beginning of 2020 but there are limited triggers for the yellow metal in 2021. The US election and the uncertainty about the outcome which drove investors to buy into gold earlier this year is over now.

With Joe Biden set to take over, the uncertainty has eased, which has led to selling and brought down prices of gold to Rs 48,000 – Rs 49,000 per 10 gm.

“Gold is precisely one such asset,” the business daily quoted Kshitij Purohit, lead commodities & currency at CapitalVia Global Research as saying. “We expect further weakness in the dollar index. This is due to zero interest rates until 2023, which will continue to support global liquidity.”

But equity markets, too, remain attractive to investors, prompting many of them to shift from gold to equities for better returns.

“Equity should outperform gold and fixed incomes in 2021,” Binod Modi, head (strategy) Reliance Securities, told the publication.

So far the BSE Sensex has risen more than 14% in 2020 while gold prices surged by more than 40% this year to touch the peak of Rs 56,000 per 10 gm and subsequently corrected to trade in the range of Rs 49,000 - Rs 50,000 per 10 gm.

To be sure, some experts see gold as a passive investment. The business daily quoted as saying Joydeep Sen, consultant with PhillipCapital fixed income desk, “Gold per se does not produce anything, in equity, corporates are producing something and in debt, there is a committed coupon.”

Credit : 

Updated Dec 25, 2020 | 10:40 IST