Analysts see gold at Rs 56,500 in 12 months. Is it a good time to buy?

Since the start of this year, gold has been under pressure as the dollar and US bond yields surged pricing in a swift turnaround of the US economy. The precious metal's journey has not been less than a roller coaster ride in CY 2021. The domestic prices of gold which eased after the COVID cases fell down towards the end of the last year, are witnessing a surge again as the coronavirus cases have risen to record levels. Analysts at Motilal Oswal Investment Services expect the gold price to hit Rs 56,500 in an year's time. On MCX, the gold is priced at around Rs 47,500 for 10 grams. In August 2020, the yellow metal had peaked to the highs of Rs 56,200 per 10 grams.

"Rising coronavirus cases, continuous liquidity injections, rising inflationary expectations, economies growing on the back of debt, Middle East tensions, trade war between US and China and few other factors continue to boost the sentiment and build a strong case for higher gold prices," says Manav Modi, Analyst at Motilal Oswal.

Analysts and fund managers continue to maintain bullish stance on gold. As per Motilal Oswal Investment Services, prices have consolidated over the last few months and recently gained some momentum to return to around $1,800 on the COMEX. "We are comfortable suggesting buying for a short to medium perspective targeting new life time highs towards $2,050 followed by $2,200," says Modi. On the domestic front, he adds  that the post Budget price correction is a good level to enter once again and sees  an immediate targets towards Rs 50,000 and eventually hitting new highs of Rs 56,500 and above over the next 12-15 months.

Kshitij Purohit, Lead-Commodities & Currency at CapitalVia Global Research sees gold hitting the target price of Rs 51,700 in the coming month. "It is a good time for investors to hold gold for medium to long term."

On expectations of an upward movement in the gold prices, fund managers ask investors to increase their allocation to the metal in their investment portfolios. "Investors may step in and increase their allocation to 10-15 per cent of their portfolio at these levels to benefit from the price appreciation that would probably follow as constructive macroeconomic fundamentals weigh in favour of gold," says Chirag Mehta, Senior Fund Manager-Alternative Investments, Quantum Mutual Fund.

But while attempting to maximise and optimise wealth, Mehta believes, investors shouldn't underestimate the importance of the instrument used to invest in gold. "It could make all the difference," he says. Amateur investors prefer physical gold like gold coins, bars and jewellery which are marred with risks like impurities, price inefficiencies and even illiquidity in times of pandemic-induced lockdowns. Sophisticated investors on the other hand choose financial or digital ways to invest in the precious metal. White digital gold offerings meet the purity and liquidity criteria, they fall short on regulation and price efficiency due to high premiums and bid-ask spreads.

Another avenue for gold investing is sovereign gold bonds. The first tranche of Sovereign Gold Bond Scheme 2021-22 will open for subscription on May 17. The maturity period of these gold bonds will be 8 years with an option to exit after the fifth year. These bonds pay annual interest of 2.5 per cent and are tax efficient, but they suffer from low secondary market liquidity resulting in price inefficiencies. While these bonds offer exposure to gold, they do not fulfill the needs of auspicious buying on Akshaya Tritiya as they are not backed by physical gold. In that case, gold ETFs allow investors to buy the yellow metal on auspicious occasions sitting at home.

"Gold ETFs is backed by 24 karats physical gold and let us sit in the safety and comfort of our home while we buy and sell gold as and when we want. These instruments are traded on the exchanges at the prevailing market price of physical gold with no making charges eating into investor returns," explains Mehta.

With Gold ETFs, gold investing can be free of impurities, liquid, well-regulated, price-efficient and only a click away.

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