Gold: Is this the best time to invest in yellow metal?

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Gold imports have zoomed ahead of the festive season in India. In the period between April-September 2021, India imported gold for about $ 24 billion. As per data from the Commerce Ministry, import of the yellow metal has shot up multi-fold (over 250%) from just $ 6.8 billion in the corresponding period last year. Gold imports in September alone rose to $ 5.11 billion as compared to $ 601.4 million (YoY). This is a rise of over 650%. In terms of units, India imported over 90 tonnes of Gold this September as against 12 tonnes in September last year.

Spike in imports

Gold analysts believe lower gold prices and higher demand from jewellers ahead of festival season has supported the import surge.

Gems and jewellery Export Promotion Council of India (GJEPC) Chairman Colin Shah said “festive season and a lot of demand are the key reasons behind this surge”.

Another reason for the spike in gold import could be the government lowering import duty on the yellow metal in the Union Budget of 2021-22 to 7.5% from the existing 12.5%. Gold demand had fallen sharply in 2020 on the back of the pandemic led lockdowns.

“Less spending on marriages due to Covid has resulted in saving is also going into gold buying leading to higher demand and therefore more imports. People who are gaining from stock markets are also diversifying their investments in gold,” said Ajay Sahai, Director General Federation of Indian Export Organisations (FIEO).

What does this indicate about gold prices?

Experts also believe that the easing of Covid-19 restrictions and large scale vaccination programme have boosted consumer sentiments. They expect higher demand for jewellery and physical gold in upcoming festival and the wedding season.

Ravindra Rao, commodity Expert, Kotak securities believes that gold prices have already moved slightly higher however they are still at lower levels as compared to last year.

“It has already been discounted in prices and we expect the prices to remain firm during the festival season in India”, he said.

What should investors do?

“Investors looking for higher returns must buy gold at current levels as we expect further price appreciation,” said Anuj Gupta, commodity expert at IIFL Securities.

Prathamesh Mally, AVP Research Commodities at Angel One feels it is advisable to invest in gold in digital form such as SGBs by government of India.

“Physical buying is totally dependent on the need of the buyer, hence, timing the gold market in terms of price is not of great importance. Investors must allocate 10-12% of their investment in gold,” he said.

Tapan Patel, Senior Analyst (Commodities), HDFC Securities, said: “Investors can look for new investment at current levels to capture short-term price gains.”