Gold prices up by 5% in April! What is driving prices higher and how to invest in yellow metal

Concerns regarding inflation is increasing ahead of massive fiscal aids and ultra-low interest rates across the globe supporting the gold price.

Gold price may have taken a reversal in the short term. After falling below Rs 45,000 per 10 gram, the gold price on MCX has crossed Rs 47,000. On April 1 this year, the price was at Rs 44800, thus showing that gold is up by nearly 5 per cent this month till now. On MCX, gold June futures were trading around Rs 47243. The highest gold price per ten gram was at around Rs 56,000 in August 2020. “Until the MCX GOLD price trades above Rs 45000, the uptrend will continue towards 47500 and then at 48850,” says Rahul Gupta, Head Of Research- Currency, Emkay Global Financial Services.

But, will the gold price continue to witness an uptrend? “The retail demand in India has been rising due to festive season buying, which has also provided support to gold prices. A pick-up in global economic activity will lead to subdued gold prices, but with the risk of the second wave, uncertainty remains which may guide gold prices in the longer term,” says Navneet Damani, VP – Commodities Research, Motilal Oswal Financial Services.

With US yield retreating, the gold price may witness higher level as well. Expectations of rising inflation in the global economy is also seen as a key factor driving the prices higher. “Gold traded higher to a more than one-month peak as U.S. Treasury yields slipped despite better than expected U.S. economic data, pushing investors to bullion as a refuge against possible inflation ahead. Concerns regarding inflation is increasing ahead of massive fiscal aids and ultra-low interest rates across the globe supporting the metal,” says Navneet Damani, VP – Commodities Research, Motilal Oswal Financial Services

As an investor, one may consider investing in Gold ETF and Sovereign Gold Bond (SGB). Most financial planners suggest to keep 5 to 10 per cent of their savings in gold preferably through paper gold investment as such as Gold ETF or sovereign gold bonds.

Santosh Joseph, Founder and Managing Partner, Germinate Investor Services LLP makes it easier for you to choose between Gold ETF and SGB. “While both Gold ETF and SGB are non-physical forms of investing and accessing gold as an asset, ETF is only in demat and SGB can be both in Demat and physical. As far as liquidity is concerned, SGB is issued for a tenure of 8 years and has a lock-in period of 5 years with partial withdrawal after 5th,6th and 7th year,”

As opposed to investing money into actual gold like jewellery, gold coins, bars where the charges eat into the profits, gold ETF reflects the cost of actual gold and has low expenses. Gold ETF is almost similar to mutual fund schemes where the underlying asset is the gold unlike stocks in equity mutual funds. Gold ETFs are passive investment instruments that are linked to gold prices and invest in gold bullion. They are investment products that combine the flexibility of stock investment and the simplicity of gold investments.

The Sovereign Gold Bonds are issued by the government at different times all through the year. Such issues are called Tranches and the issue is open only for a few days. But, what if you want to invest in gold on any other day? You can still buy SGB even if there is no such ongoing fresh issue of SGB by the government. These SGBs are listed on stock exchanges and one can buy, sell the units during the trading hours from the secondary market.

“While ETF are live and reflect live Gold prices, SGBs are issued by the government in tranches and also carry an additional interest rate of 2.50 per cent per annum for investors and a Rs.50 discount per gram at the time of buying,” adds Joseph.