Dhanteras gold buying: 31% returns in one year and 57% returns in two years; should you buy gold this year?
The tradition of Indian households buying gold on Dhanteras has become one of the best performing investments in recent times. Gold has given a whooping 30.6% returns in just a year from the previous Dhanteras; the total return is 56.8% if you had invested in the metal 2 years ago (in 2022) on Dhanteras day.
It is not only the short-term returns that look impressive, but even the
long-term returns from the yellow metal are mostly in the double digits. Such a
strong performance will influence many more to invest in the yellow metal
around Diwali.
Historically, gold has seen multiple price corrections and stagnation for many years. So a good performance in the recent past offers no guarantee of higher returns in future. If you are planning to invest in gold, you must weigh your options and understand if the prices will continue to rise.
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Dhanteras day gold buying - Historical returns in 2024 |
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|
Year of Purchase |
Dhanteras Day |
Price in Rs (10 g, 999) |
Holding Period |
Absolute Return |
Annualised Return (CAGR) |
|
2023 |
10 Nov (Friday) |
60,097 |
1 Year |
30.6% |
30.6% |
|
2021 |
02 Nov (Tuesday) |
47,644 |
3 Years |
64.8% |
18.1% |
|
2019 |
25 Oct (Friday) |
38,570 |
5 Years |
103.5% |
15.3% |
|
2014 |
21 Oct (Tuesday) |
27,558 |
10 Years |
184.9% |
11.0% |
|
2009 |
15 Oct (Thursday) |
15,905 |
15 Years |
393.6% |
11.2% |
|
2004 |
10 Nov (Wednesday) |
6,525 |
20 Years |
1103.1% |
13.2% |
|
1999 |
05 Nov (Friday) |
4,600 |
25 Years |
1606.6% |
12.0% |
|
1994 |
01 Nov (Thursday) |
4,806 |
30 Years |
1533.5% |
9.8% |
|
Returns as on Oct 28, 2024, for gold (999 purity) price at Rs 78,505 per 10 g, Gold price source: IBJA |
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The shine of gold has not diminished despite the government cutting the custom duty sharply, from 15% to 6%, in the budget presented in July this year. A correction in gold prices that happened after the budget
announcement of custom duty cut is now a thing of the past. “After the duty cut, gold prices in India initially dipped but have since rebounded sharply. From Rs 68,000 per 10 g in July 2024, gold has recovered to Rs
76,000 per 10 g as of October 2024, representing a nearly 12% rise,” says Narinder Wadhwa, Managing Director of SKI Capital.
Gold prices are now more closely linked to international price movements
The short lived correction has linked gold price in India more closely to
global gold prices. “As India imports the majority of its gold, lower duties
reduce import costs, narrowing the gap between local and global prices,”
says Renisha Chainani, Head-Research at Augmont. “As a result, fluctuations in international gold markets are now more likely to be reflected in domestic prices in real time. Additionally, global factors, such as changes
in US interest rates and geopolitical developments, will have a more direct influence on India’s gold market.”
Gold prices are now more aligned with international trends. "As of October
2024, gold prices in India are around Rs 76,000 per 10 g, a reflection of
global price movements. While the alignment with international prices has
strengthened, domestic factors like the rupee’s exchange rate against the US
dollar and local demand continue to affect prices," says Wadhwa.
Gold price in future: Central bank demand is expected to remain high
One of the most prominent factors that determines the direction of gold price
is the quantum of buying by the central banks, who are the biggest buyers of
gold. "Central banks have been increasing their gold reserves as a hedge
against global economic uncertainty and inflation. In 2023, central banks
collectively bought over 1,000 tonnes of gold, according to the World Gold
Council. This trend is expected to continue, as gold is seen as a secure store
of value, especially during volatile geopolitical periods," says Wadhwa.
Demand from central banks is unlikely to fall substantially. Surendra Mehta,
Secretary of the India Bullion and Jewellers Association (IBJA), says the
central banks will give more weightage to gold as long as the current armed
conflicts continue.
Chainani says, “Central banks are likely to continue increasing their gold
reserves in 2024. Surveys and data indicate that despite high gold prices and
already substantial purchases in recent years, many central banks — especially those
from emerging markets — intend to maintain or even increase their gold
holdings. Key drivers include the need to diversify reserves, hedge against
economic uncertainties, and reduce reliance on traditional reserve currencies
like the US dollar. Additionally, concerns about geopolitical risks and shifts
in global currency dynamics further incentivise central banks to boost their
gold allocations.”
Will gold prices lose their momentum in near future?
While the historical returns of gold have been very good, the question every
investor wants an answer for is will this be repeated.
“Further growth will depend on several factors, including international gold
prices, central bank policies (especially US Fed decisions), and festive-season
buying trends in India. If inflation persists or geopolitical tensions rise,
gold could see further gains as a safe-haven asset. Gold prices are heading
towards $3000 (~Rs 85,000) (i.e. 10% more) in the next 6 months on strong
investment demand,” says Chainani.
Gold is considered a good hedge against economic uncertainties. A rise of a
large-scale conflict anywhere in the world or an economic downturn often work
in favour of gold prices. “Whether prices will continue to grow depends on
global economic conditions, inflation, and geopolitical tensions. Gold tends to
be a strong investment during periods of war and uncertainty, which could push
prices higher, possibly beyond Rs 78,000 if geopolitical risks escalate,” says
Wadhwa.
The ongoing conflict in the Middle East is likely to continue for some time.
“As long as the Middle East tension keeps escalating, gold prices will continue
to go higher,” says Mehta of IBJA. He also hints that the US economy is getting
into recession and so gold prices are increasing.
Should you buy gold this Dhanteras?
Gold
offers a good option to hedge your investment portfolio against inflation and
economic uncertainties. “Dhanteras is traditionally an auspicious time for gold
purchases, and with the price at around Rs 76,000 per 10 g as of October 2024,
many investors may consider buying gold. Despite the higher price, gold remains
a solid hedge against inflation and geopolitical uncertainty. For those looking
to diversify their portfolios, buying gold
during Dhanteras could be beneficial, provided they evaluate their long-term goals and risk tolerance,” says Wadhwa.
Investors living in a country like India are better off by keeping some
exposure to gold.
The October 2024 edition of NETRA, a monthly report from DSP Asset Managers,
says: “Including gold in a portfolio acts as a hedge against volatility,
protecting against risks while enhancing overall returns. For investors in
emerging markets, gold offers both stability and growth potential in uncertain
times.”
While festivities may be an excuse to make such a purchase, it will help you
diversify your investment. "If you are looking for long-term stability and
portfolio diversification, investing in gold this festive season can be
beneficial," says Chainani. “Investors can consider buying gold this
Dhanteras, given its value as a long-term hedge against inflation and economic
uncertainty. Despite high prices, gold retains its appeal due to seasonal
demand, cultural significance, and its role in portfolio diversification. With
central banks continuing to accumulate gold reserves, prices are likely to
remain stable or rise in the long run."
Which form of gold is best for your investment?
You have many options to invest in gold — such as bullion, coin, jewellery,
gold fund, gold ETF, sovereign gold bonds, digital gold and so on. If your
objective is investment, you must make sure that you invest in the most
efficient way. “For most investors, gold ETFs or sovereign gold bonds are the
best options due to liquidity and tax advantages, although no new SGB have been
issued; only the earlier issues are available in the market,” Wadhwa points
out.
As the government has not issued fresh SGBs this year, it is better to look at
other options. "Gold ETFs and digital gold are good alternatives for those
aiming to avoid storage hassles while still benefiting from potential price
appreciation," says Chainani.
Should you invest bulk or in a staggered manner in gold?
Gold prices are known to fluctuate significantly. So it is better to invest in
a staggered manner. "A staggered investment strategy through SIPs is
generally recommended to mitigate price volatility and avoid timing risks. Bulk
purchases may suit those looking for specific festive deals but can expose
investors to short-term market fluctuations," adds Chainani.
A staggered manner is a better way to invest as you can also increase or
decrease the amount. “In terms of strategy, staggered investment over time
helps reduce the risk of volatility. However, for those anticipating further
price increases due to geopolitical uncertainties, bulk investment at the
current Rs 76,000 price level might be a good strategy,” adds Wadhwa.
Source: https://economictimes.indiatimes.com/