Outlook on Gold: A 5-point Analysis

Last updated: 27 Dec, 2020 | 04:47 pm

Outlook on Gold: A 5-point Analysis

Gold: A safe haven

  • Economies still to recover: While econimies around the world have rebounded in the last two quarters, it could still take a few quarters for full-blown economic recovery. According to data from S&P, 31 out of 34 economies (GDP above $200 billion) were still in recession as the coronavirus pandemic disrupted business activity and dealt a significant blow to consumer confidence in the previous quarter.
  • Central Banks pumping in money: Central banks and governments around the world are pumping in trillions of dollars into the economy, in a bid to keep it afloat. The USA has already offered a stimulus package of over $3 trillion in the last few months with more to follow. However, printing money endlessly has led to risks to the country\\u2019s finances, and hence, the implied value of the currency has reduced.
  • Diversification benefit: Given its low correlation with other investments such as stocks, bonds and real estate, Gold provides very good diversification benefit. It is an asset that is considered a safe haven in a situation where currencies are being devalued as well as a good hedge against inflation.
  • Inflation expected: The world has seen an unprecedented drop in productivity, and a move towards de-globalisation of trade due to Covid-19 induced curbs in the last few months. These are conditions ripe for inflation over the medium term.
  • The recent rally in the stock market is not a reflection of the fundamentals in the economy and is driven primarily due to excess liquidity in the system. There is high risk in the economy, and we are still not out of the woods, fundamentally.

All this adds up to a favourable medium-term environment for Gold prices and a great way to take exposure is via the Sovereign Gold Bond route issued by RBI on behalf of the Government of India. 

Salient features and benefits of SGBs 

  • The latest tranche of sovereign gold bonds (2020-21 - Series XI) opens for subscription tomorrow. The issue will close on 05th Feb 2021.
  • Fixed price of Rs 4,912 per gram and an attractive Rs 50 discount for online application
  • Coupon rate of 2.5% per year.
  • Tax-free capital gains at maturity. This is an exclusive benefit available on gold bonds
  • Minimum investment at just one gram
  • No GST, (a 3% GST is levied on gold charges)

Reach out to your personal family wealth office to help you invest in SGBs! Click on the Ask Advisor button below!

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