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Mumbai: In a recent study on precious metals by Windmill Capital, a wholly owned subsidiary of smallcase Technologies Pvt Ltd, highlights that Gold has been in focus during FY23 due to the uncertainty in the global financial markets. The equity markets are expected to remain volatile due to inflation and slowdown concerns, gold will continue to remain in focus as investors look to move towards safety. Usually, gold acts as a hedge against inflation and protects capital when the equity markets are in a downtrend. According to MCX, gold prices have moved up over 20% to Rs 60,800 as on April 13, 2023, from Rs 50, 800 as on May 3, 2022 (Akshaya Tritiya, 2022). Gold is expected to witness strong demand due to recession fears and the meltdown of economic activity in the US.

The supply and demand dynamics have been changing due to the measures announced by the government during the Union Budget 2023-24. Gold ETFs are preferred over purchasing gold in physical forms like jewelry, coins, and bars. It can be either dematerialised or traded in paper form just like regular funds on the stock exchange. They are purchased and sold at the same rate across India, giving them an edge over physical jewelry. There is complete transparency in prices, and these funds can be traded at any time through a broker from any location. The investor doesn’t have to worry about storage, pay locker fees, and worry about safety issues as they hold these funds through Demat. Quite similar are the reasons to invest in Sovereign Gold Bonds which offer an additional layer of tax friendliness.

Naveen KR, Senior Director - Investment Products, Windmill Capital & smallcase manager, said “Gold is expected to yield good returns in FY24 as well. Inflation is coming off highs and RBI’s pause in the last policy clearly indicates their focus is on growth. While FIIs buying into the Equity markets in the past few sessions is a boost for Equity markets, the volatility in the equity markets will keep precious metals an attractive space to park funds.”

As per the above table, on an average gold has returned 12% in INR. The base case expectation is to see similar returns, if not 200-300 bps more.

In the Indian context, gold has doubled over the past 10 years on an absolute basis, while it has managed to deliver compounded returns of 7.5%. In USD terms too, gold has been a star performer, even if one goes back to the 1970s. It has delivered returns close to 10% on average, for almost 50 years. The difference between gold returns in INR and USD is simply the currency exchange fluctuations.

Gold has always witnessed a robust demand scenario which makes it an all-weather asset class. From a demand-supply point of view, there hasn’t been any time period where there was abundance of gold. Therefore, its scarcity (to a certain extent) also aids in the price movement.

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