ATM :: Gold luring stock market investors: Safe haven or a hedge?

ECONOMICTIMES.COM | Feb 18, 2014, 02.31PM IST


NEW DELHI: Call it the great low-price trick of the investing world, but gold is defying naysayers. Yes, it’s glittering again, and experts say we seem to have missed out on that positive.

“What has happened, and what we did not capture over the last few weeks is that gradually gold and sliver have climbed back back to 30,000 and 48,000 levels, respectively,” Ajay Srivastava, CEO Dimensions Consulting, tells ET Now.

“All experts were saying that gold will crash. Goldman issued a major claim on that, but what has really happened actually is that risk-aversion has crept in. The price of precious metals has gone up and that is where the lot of money is going in,” he says.

Is the money moving from equities to gold?

“There is a semblance of global flows going back into precious metal, away from equities; or at least the hedge is being created,” he says.

As per the latest World Gold Council report, the year gobe by saw the largest volume increase in jewellery demand for 16 years as consumers across the globe reacted to lower gold prices.

“Full-year demand was 2,209.5 tonne, 17% above 2012; and the highest level since the onset of the 2008 financial crisis,” the report says.

Back home, finance minister’s interim Budget was a big disappointment for jewelers; the impact of which was seen on Dalal Street, with jewelry counters coming under heavy selling pressure.

It was expected that the import duty on the metal would be relaxed in the interim Budget, especially after Congress president Sonia Gandhi last month wrote to the commerce ministry seeking the same.

No doubt that the move by the government has helped rein in fiscal deficit, but has it really helped?

“Suppressing of gold imports looks good from a current account point of view, but Indians are still importing gold. They’re doing it illegally. So, it is not part of the current account picture, says Viktor Shvets, MD & Head of Strategy Asian Strategy, Macquarie Securities.

Contrary to the said current trend, several experts are of the view that gold has lost its shine, at least for now.

We believe that the return expectations from gold as well as real estate will be moderating. This would put other financial products like equities, MFs, insurance, bank deposits in a far better position,” says Nilesh Shah, MD & CEO, Axis Direct.

“There has been a huge shift towards physical assets like real estate and gold over the last five years where Indian savers put more incremental money in physical products than financial products. Going forward, there will be a tectonic shift for Indian savers moving away from physical products into financial products; and certainly equity markets will be having a beneficial impact of the same,” he says.

Again, commodities Guru Jim Rogers is very optimistic on the metal. He says the yellow metal is poised for a rally, after having witnessed a big drop in 2013. On the last trading day of 2013, the yellow metal slipped to a six-month low, making for its biggest annual decline in 32 years.

“There are huge shorts that have been built up in the precious metals space. So, it’s overdue for a rally. We had a big drop in 2013. Everybody got negative, and everybody got short. Given this, we’re going to have a rally,” Jim Rogers said last month.

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