Diwali 2022: Has Dhanteras day gold buying given decent returns? How does it compare with Nifty returns. Check this before investing during festive season.
Gold buying is considered auspicious on Dhanteras, the first day of the Diwali festival. It is an age-old tradition among Indian households, serving as both an indulgence and investment. As Indians gear up for gold buying this Dhanteras, it would be interesting to take a look at the yellow metal's returns and also do a comparative study with returns from equities.
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What trends say?
According to Vinit Pagaria, Head, Data & Research, StockEdge, if an individual invested Rs 1 lakh/year in gold on Dhanteras for the past five years, their investment of Rs 5 lakh would’ve been worth Rs 6.62 lakh, generating an IRR of ~ 9.5 percent.
This is because out of the five preceding years, gold gave positive returns in four years.
“It did particularly well during COVID. Pent-up demand and postponed marriages also supported gold prices. Though recently gold prices have relatively cooled off, if one would’ve invested in gold last Dhanteras, the investment would still have made a return of ~ 6 percent,” he said.
Gold returns vs Nifty returns?
If an individual had invested in the same manner in the Nifty, the investment would’ve generated an IRR of ~ 12 percent, Pagaria said.
“The investment of Rs 5 lakh would be worth Rs 7.1 lakh,” he added.
As mentioned above, the investment in gold would be worth Rs 6.62 lakh. Hence, equity generated excess returns of Rs 50,000.
"However, it is interesting to note that till October 2020 the investment in gold would’ve outperformed the investment in equity, generating an IRR of ~ 22.5 percent vs ~ 4 percent. On a year-on-year basis, gold would’ve outperformed equity in four out of five years. It is because of the returns generated by Nifty from October 2020 to October 2021 (55 percent vs -6 percent) that the index has been able to outperform gold. If we look at the returns in the past year (October 2021 to October 2022), gold has generated ~ 6 percent compared to ~ (6) percent generated by Nifty,” Pagaria said.
Considering a longer investment horizon of 10 years, Nifty would’ve generated an IRR of ~ 12 percent compared to ~ 7 percent generated by gold.
Here are the graphs showing the comparison:
What's the outlook for gold now?
Gold futures are moving in a broader range of Rs 49,000-52,600 in the last six months. The dollar index is showing initial signs of exhaustion in the momentum, which is a sign of relief for the bullion bulls. Now, a major event to watch out for is the Federal Open Market Committee (FOMC) meet on November 2.
Rahul Sharma, Director, Head — Technical & Derivative Research, JM Financial Services Ltd, believes that immediate support is placed around Rs 49,700 and any dips towards the same shall be used as a buying opportunity for a bounce towards Rs 52,600 and above Rs 53,500 levels.
In general, gold and silver prices get a boost during the festive season. A fall in precious metal prices was restricted following the rupee depreciation that was to the tune of ~10 percent, coupled with hike in basic customs duty on gold imports by 5 percent.
Motilal Oswal Financial Services, in a note, said macro-economic backdrop does have an upper hand this year and the major focus is on the central bank’s monetary policy, inflationary pressures, and geopolitical tensions.
"If there are any changes in these factors, we could see some short covering, which could take gold prices much higher and quicker, but we feel that till the time we don’t see a change in stance from major central bankers w.r.t aggressive interest rate hikes, we could continue to witness pressure on gold prices," it said.
So, should one invest?
Real interest rates across major economies are negative and geopolitical tensions persist. And gold has historically performed well under such circumstances.
Given that gold has given decent returns, has low correlation with equities and acts as a currency hedge (dollar has appreciated ~ 10.5 percent vs INR YTD), one can allocate some portion of their portfolio to gold, said Pagaria while talking to CNBC-TV18.com.
Anyone who is looking to invest in gold with a medium- to long-term outlook can start to accumulate at these levels.
(Edited by : Shoma Bhattacharjee)
First Published: IST