Precious metals markets experienced a significant dip this week amid renewed tension in the Middle East which has fuelled Inflation concerns. Gold prices fell by nearly Rs 1,700, slipping below the Rs 1,45,000 mark. 24K gold was down 1.19% to Rs 1,44,340 per 10 grams. Silver saw a steeper fall, dropping below the critical Rs 2 lakh per kg mark.
US interest rates have also contributed to the dip as it is expected to hold interest rates at its Oct. 27–28 meeting, but may increase it during December review. Higher rates hurt gold because it pays no interest.
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With Diwali approaching, the dip in gold and silver prices recently is likely to create renewed interest in these precious metals among the Indian buyers. In India, it is considered auspicious to buy gold and silver on Dhanteras puja. As a result, demand for these metals is expected to surge in the coming days.
This is likely the same reason why Indian mutual fund houses have halted fresh subscriptions into gold and silver exchange traded funds. ETFs are an investment fund that you can buy and sell on a stock exchange, just like shares of a company. Each gold ETF unit represents one gram of physical gold.
Ways To Invest In Gold
As a result, investors may face limited opportunities to buy gold. This doesn't not mean other options are unavailable:
Gold ETFs: Since Oct. 16, many Indian mutual fund companies have stopped taking new money into their Gold ETF Fund-of-Funds (FoFs). Gold ETFs themselves, bought on the stock exchange, are still open. This means that if you have existing SIPs in gold ETF FoFs, they won't be affected, but new registrations and inflows are temporarily halted. If you want to invest in gold now, you can directly buy a gold ETF on the exchange.
Physical gold: Buying gold bars or coins attracts 3% GST. For jewellery, you also have to pay making charges and GST. These additional costs are generally not recovered when you resell gold. As a result, you need to keep these costs in mind when investing in physical gold.
Sovereign Gold Bonds (SGBs): The government has stopped issuing new tranches, so you cannot subscribe to fresh bonds from RBI, banks or brokers. Existing SGBs can be purchased from other investors in the secondary market.
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Whether you buy ETFs or physical gold, you must note that gold prices are not guaranteed. While historically, the previous metal has offered around 10% average annual returns, it can be affected by broader economic conditions and market situation.
As a result, investors should prioritise their long term investment horizon rather than reacting to short term changes in price levels.
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