The safe-haven demand has been accentuated by the COVID-19 pandemic with the gold prices started rising from October 2018. It has risen from Rs 30,000 per 10 gram to currently above Rs 50,000 per 10 gram.
Gold prices have had a phenomenal run in the last two years, rising around 75 percent and continuing to scale new highs. The safe-haven demand has been accentuated by the COVID-19 pandemic with the gold prices started rising from October 2018. It has risen from Rs 30,000 per 10 gram to currently above Rs 50,000 per 10 gram.
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In a recent report, ICICI Direct expects significant upsides towards Rs 70,000 from a long term perspective and advises investors to continue investing to benefit from the multiyear uptrend.
It noted that historically, over the past five decades, larger uptrends in international gold prices have lasted at least for three to four years and in the current context it is only the second year of the uptrend. It expects markets to maintain rhythm and continue uptrend for another couple of years.
"In the current era of COVID-19 pandemic where there is heightened uncertainty and concerns around global growth and human lives, there was bound to be some interest in safe-haven assets like US government bonds and gold. However, the extent and the intensity of the rally in global gold prices have taken everyone by surprise," the report said.
The brokerage maintains a positive outlook on gold prices given an uncertain outlook on global growth and volatility in other asset classes like global equity, commodity, and currency markets. Massive stimulus measures announced by major central bankers, extremely low-interest rates, and increased buying interest of global central bankers will also keep the yellow metal in demand, it said.
For Indian investors, gold provides an effective diversification to the overall investment portfolio, noted ICICI Direct, and suggested investors consider allocating 5-15 percent of their overall portfolio in gold.
The brokerage believes Sovereign Gold Bond is a better investment option than physical gold
The Reserve Bank of India (RBI) through its notification on April 13, 2020, announced the launch of Sovereign Gold Bonds (SGBs) 2020-21. These bonds will be issued in six tranches from April 2020 to September 2020 and a discount of Rs 50 per gram will be available for investors applying online and making payment using digital modes. Also, investors will get additional interest at the rate of 2.50 percent per annum on the nominal amount and will continue to have full exposure to gold prices to the extent of the amount deposited.
As per the brokerage, SGBs offer a good alternative to take exposure to gold as it offers additional interest. There are no annual recurring expenses and capital gains arising on redemption of the sovereign gold bond scheme would be exempt from tax.
If these bonds are sold in the secondary market before maturity, capital gains arising on such transactions will be taxed at 20 percent with indexation if sold on or after three years and would be subject to marginal tax rate if sold before three years.
First Published: IST