Hold and Buy the Dips

The year may have been challenging in many aspects, but it was a golden year for those who invested in the yellow metal. Gold prices touched an all-time high of Rs 56,191 in August as uncertainty around the pandemic persisted and stock markets tanked worldover. Gold has returned 28.63 per cent so far this year as of December 18.

"Gold has given double-digit returns of around 24 per cent in the global market and 28.63 per cent in the domestic market. Continuous flush of liquidity by global central banks, recession in all major economies and rising Covid cases fuelled the rise of gold prices. However, hopes of a vaccine are bringing in optimism across the global economy. This optimism will continue in 2021, which is what will define the landscape for the yellow metal in the months ahead," says Anuj Gupta, Deputy Vice President, Commodities and Currencies Research, Angel Broking.

Gold was hovering around Rs 39,000 as 2020 kicked off. It kept hitting fresh highs as its safe-haven appeal drew panic-stricken investors towards it. The net asset under management (AUM) in gold ETFs stood at Rs 13,239.88 crore as on November 30, 2020, while sovereign gold bonds received record investments of Rs 11,884 crore in eight series launched so far.

"The weakness in the US dollar is one of the reasons for appreciation in gold prices. The RBI also purchased gold, which supported prices," adds Angel Broking's Gupta.

Coming up

Gold prices have corrected from record high levels and are hovering around Rs 50,000 per 10 grams. Gold ETFs saw an outflow of Rs 141.09 crore in November after seven months of inflows since April. There has been a decline in fund raised via sovereign gold bonds too. The recent profit-booking came on the back of development around Covid vaccine and Joe Biden winning the US polls.

So, is it time to book profits? "The important upside trigger for gold in 2021 will be the stimulus package by the US economy along with global growth that may attract investors to the yellow metal as a safe-haven asset," says Gupta.

However, a faster-than-expected recovery in the global economy and speedier approvals and distribution of the coronavirus vaccine could put pressure on prices in 2021.

So, unless you need funds for a life goal or need to rebalance your portfolio across asset classes, booking profits in gold may not be the right move. Price outlook does suggest volatility, but Sugandha Sachdeva, Vice President, Metals, Energy & Currency Research, Religare Broking, says dips would remain a good buying opportunity as long as one can buy the precious metal in a staggered manner. "Buy gold mini/gold in a staggered manner at first levels of around Rs 49,200-48700/10 grams and the second level of Rs 47,700/10 grams for a target price of Rs 56,100/10 grams initially and the next Rs 60,500/10 grams, while placing the stop-loss order at Rs 46,900/10-gram mark, he adds.

Experts advise at least 10 per cent portfolio exposure to the yellow metal. "We are advocating investors to hold gold since we expect it to test Rs 55,000-60,000 levels again in 2021," says Gupta.

@apri_sharma