An investor should look for a minimum 8-10 per cent allocation to gold and silver to benefit from growing demand and mitigate the market uncertainty risk, says Tapan Patel, Fund Manager – Commodities, Tata Asset Management.
In an interview with LiveMint, Patel said that gold has a very low correlation with other asset classes hence it is advisable to allocate some of it to your portfolio.
Edited Excerpts:
Q. Amidst geopolitical chaos and the ongoing effect of inflation, what changes do you recommend investors make in their portfolios?
The current market environment is quite challenging as investors look to hedge or diversify their portfolios with safer assets. Investors may opt for an asset class that can protect their portfolio from market uncertainty. Gold is a proven asset class that has protected its value in a time of distressed economy and uncertain market conditions. Gold has a very low correlation with other asset classes hence it is advisable to allocate some portion of the portfolio amidst geopolitical chaos and inflationary scenarios.
Q. What allocation strategy do you advise investors when deciding between investments in equity, debt, gold, and silver?
Investment allocation completely depends on an investor’s financial goals, age, risk appetite, and return expectations among other factors. Investors should go for asset allocation as per economic cycles and market environment. Investors should give higher weightage to equity during times of economic boom and growth period while a balanced approach is advisable with an increase in allocation to bullion and debt during the economic downturn.
Q. Is there a growing interest in gold and silver ETFs among investors? If yes, what factors are driving this trend?
Yes, investors are now opting for the non-physical holding of gold and silver to avoid storage costs and other risks. The market has seen steady growth and inflows in the gold and silver ETFs with increased market volatility and geopolitical uncertainty. Investors have grown interested in ETFs to own the assets in the existing portfolio either in demat form or mutual fund account with ease of dynamic asset allocation on the same platform. Young and new investors have found it a more cost-saving, liquid, and easy way of investing.
Q. How do you anticipate the demand trends for gold and silver evolving, and what allocation strategy would you recommend to investors for long-term portfolio stability and growth?
The demand trend for gold and silver has evolved with time. We have seen the usage of gold and silver changing from tradition to technology. The consumption of gold and silver has been rising and evolving over the years. Gold prices have witnessed four bull cycles in the last 20 years due to high market uncertainty and rise of geopolitical factors. Silver prices have benefited from higher demand from industries and new technology. An investor should look for a minimum 8-10 per cent allocation to gold and silver to benefit from growing demand and mitigate the market uncertainty risk.
Q. What’s your view on the current gold and silver market dynamics, considering factors like inflation, currency fluctuations, and market uncertainties?
Gold prices may continue to remain elevated considering global macros and geopolitical factors. The US Fed has yet to decide on the timing of pivoting the monetary policy while market players are gauging for a mild recession or soft landing of the economy. The ease in inflation numbers and weakness in the job market have boosted market sentiments towards sooner interest rate cuts. Silver prices have capped gains compared to gold due to lower demand from the industries. Silver prices may gain momentum with gradual economic recovery from China and EuroZone industrial activity. The ease of US bond yields and change in central bank policy stance may remain supportive for both gold and silver prices over the medium term.
Q. While DII flows have been robust for the past few years, rising global interest rates have kept FPI flows under check. How do you think this would affect the stock market scenario in the long run?
For FY23 the FIIs were net sellers with outflows of close to USD ~10 bn. While the DII inflows were robust at USD ~33 bn. For FY24TD, the FII flow is USD ~14.7 bn. And the DII flow is USD ~10.6 bn. The foreign portfolio investments in India comprise three buckets – Global EM funds, Passive funds, and India-dedicated funds. While the first two have seen outflows and will likely turn positive only when the rate cut cycle is underway, the India-dedicated inflows have been robust.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
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Published: 05 Jan 2024, 02:30 PM IST