Gold rally: Soaring prices cool festive demand; experts see short-term correction but back annual SIP buying
Gold may be synonymous with festivals and weddings in India, but this season the metal’s dazzling rise has kept many buyers away. Even as shopfronts sparkle with festive offers, record-high prices have dulled demand for the yellow metal.On October 7, gold futures on the Multi Commodity Exchange (MCX) scaled Rs 1,21,111 per 10 g, marking the first time in nearly five months that prices breached the Rs 1 lakh mark, according to an ET report. Analysts say the rally reflects the global financial unease and expectations of a US Federal Reserve rate cut, compounded by jitters over a possible US government shutdown.“Diversification of reserves and investment in gold is emanating from the unfolding macro situation around the globe, especially with dwindling dollar assets, and the policymaking and dynamics of deficit and debt in the US,” said Chirag Mehta, Chief Investment Officer at Quantum Asset Management.Adding to this, Atul Shinghal, Founder and CEO of Scripbox, said that central banks’ sustained purchases of gold and the rupee’s depreciation against the dollar have amplified returns for Indian investors.‘Correction likely after Diwali’Despite the rally, several analysts expect the prices to ease in the coming months. “Technical indicators suggest some chance of consolidation or correction in the short term due to overbought conditions and possible profit-booking by traders,” said Shinghal, quoted ET report. Poonam Rungta, a Mumbai-based certified financial planner, also anticipates a cooling-off phase. “The prices are unrealistically high and a correction is likely after Diwali because inflation and macros are controlled,” she said.However, Mehta warned that the volatility in global markets could make short-term predictions tricky. “In crises, central banks across the globe, and especially the Fed, try to be more accommodative and print a lot of money to bring in liquidity. So there could be further upsides for gold as the backdrop remains constructive,” he said.Festive gold buying turns cautiousTraders and jewellers say that the festive buying sentiment remains subdued, particularly in urban centres where gold is viewed more as an investment than a ritual purchase. Yet, long-term investors are advised not to hold back.“Don’t try to time the market,” said Rungta. “If you have allocated a fixed portion of your portfolio, say, 15-20% to gold, and if you’re underinvested, you should buy gold. The occasion of Diwali is as good as any to align your asset allocation.”Experts suggest that annual gold purchases—such as buying during Diwali each year—act like a systematic investment plan (SIP). “Annual Diwali gold purchases mimic an SIP, smoothing price volatility and aligning cultural and investment objectives. Over the years, such regular discipline has historically generated decent returns,” said Shinghal.As per ET Wealth data, an investor who bought 10 g of 24-carat gold every Diwali since 2015 would have earned a 20.88% return by now.Rungta added that consistency matters more than timing. “It makes sense to do so because buying gold every year is like an SIP. Allocating a fixed amount rather than a fixed quantity tends to be more rewarding,” she said.Mehta noted that the long-term trend remains favourable. “Had you decided not to buy because the prices were too high, you would have missed the bus. We have seen prices rising from Rs 3,000–4,000 per 10 g 20 years ago to Rs 1.2 lakh now,” he said.Physical, paper, or digital gold?Those buying gold for customary or sentimental reasons may still opt for jewellery or coins, but planners caution against viewing physical gold as an investment. “Physical gold, especially jewellery, comes with making charges, purity verification, and storage concerns, and should only be bought for sentimental purposes, not investment,” said Shinghal.For investors, gold ETFs and mutual funds offer better options. “ETFs have existed since 2007, but people have still not become accustomed to them. It’s more convenient and hassle-free, with no issues of purity or safekeeping,” said Mehta.
Gold ETFs require a demat account and a minimum investment of 1 g, while gold mutual funds, which invest entirely in ETFs, allow investors to start SIPs without one. “You can start an SIP even in a gold ETF, such as once a year or once a month, but it’s not automated. You need to invest manually,” said Mehta.Digital gold, which has grown popular in recent years, still carries risk. “Digital gold is not regulated so there could be some discomfort as people have lost money in it,” Mehta warned, though he noted that it offers convenience and eliminates storage issues.For now, experts advise that the glitter of gold should not blind buyers to financial prudence. Buy steadily, stay diversified—and don’t let sentiment overpower allocation discipline.(Disclaimer: Recommendations and views on the stock market and other asset classes given by experts are their own. These opinions do not represent the views of The Times of India)
