Booked some profit in stocks? Time to look at gold bonds

In the latest tranche of sovereign gold bond offering in the year ending December 3, investors will have to pay Rs 4,741 per gram of gold after the Rs 50 per gram discount for digital payments. This is Rs 30 per gram higher than Rs 4,711 per gram that they paid for in the previous issue in October. Gold prices have dropped 3.4 per cent in the last one year in rupee terms, while in dollar terms they are up 1.4 per cent.

“The fears surrounding the new variant of virus have raised fresh concerns, which will lead to weakening of the dollar, pushing gold prices higher,” says Abhishek Bhatt, head (wealth management) at Arihant Capital. Bhatt believes investors who booked profits in equities due to high valuations could also reallocate some money to gold.

Analysts believe easy liquidity along with accommodative policies by governments and central banks will continue with the new virus posing risks to the economic recovery. In case the US Federal Reserve signals that the tapering of the bond buying programmed will be deferred , prices of the yellow metal could rally.

“After a long consolidation phase, we expect gold to move up by 12-15 per cent over the next 3-6 months,” said Pushkaraj Kanitkar, VP (research), GEPL Capital.

Financial planners believe gold will shield portfolios against any sharp fall in equities. Investors could allocate about 10 per cent of their portfolios to the yellow metal.

“Gold will support your portfolio against intermittent downturns triggered on account of the pandemic and weak economic data,” said Nirav Karkera, head of research, Fisdom.

Wealth managers believe sovereign gold bonds are one of the most efficient ways to own gold as long as investors do not need intermittent liquidity. “Sovereign Gold Bonds pay an interest of 2.50 per cent per annum, an added benefit to the investors which is not available with Gold ETFs. Gold ETFs charge an expense from the total assets in the range of 0.45 per cent – 0.80 per cent,” says Deepak Jasani, head of retail research at HDFC Securities.