Last week, the government increased the customs duty Sleep To reduce precious metal imports from 10.75% to 15%. This was done with a view to easing the pressure on the rising current account deficit (CAD), which in turn aided the depreciation of the rupee.
Thereafter, the prices of Sleep Those who were range bound till Friday suddenly saw a spike. Gold prices on MCX hit two-month high on Tuesday 52,261 per 10 grams.
Gold Exchange Traded Funds (ETFs) have had a similar impact. Data from valueresearchonline.com shows that Gold Fund has been the best performing category with a return of 2.5% last week.
The Net Asset Value (NAV) of a gold ETF is calculated based on the rupee value of one gram of gold, taking into account import duties and other costs. And, experts say, a duty hike of around 5% should have resulted in a similar rise in gold prices.
“If you calculate gold prices by taking into account international prices and adding duties, the commodity is trading at around 2% lower than its rate in the physical wholesale market,” Chief Investment Officer Chirag Mehta said. Quantum Asset Management Company.
Mehta said that at present there is no complete pass-through of duty due to weak demand in the physical market.
From an asset-allocation standpoint, it is advisable to place some allocation to gold – around 5-10% – for diversification benefits as a safe-haven in times of the metal’s low correlation with other asset classes and global risk-off sentiment. In view of the demand.
Domestic Gold Funds have delivered around 8-9% (Direct Plan) over the last year. The bulk of this return is on account of the depreciation of the rupee against the US dollar, around 5.5% and the recently imposed import duty.
Dhaval Kapadia, Director-Managed Portfolios, Morningstar Investment Advisor India, said going forward, gold is likely to underperform in view of aggressive interest rates by central banks to contain inflation. June was volatile for most asset classes. Internationally, gold fell 1.6% on a monthly basis to close at $1,807.
“Gold may find some support on safe haven demand amid slowing global growth and concerns about any escalation in the Russia-Ukraine crisis,” Kapadia said.
Mehta, however, said the global economy is likely to have above-average inflation and below-average growth for several years.
“This stagflation environment, if it is realized, will have destabilizing consequences for the global economy and markets to support investment demand for gold,” he said.
As for their past performance, on a three- and five-year basis, gold funds in India have grown by 14.08% and 11.97%, respectively. In the same period, these funds have outperformed the large-cap fund category as well.
According to experts, since gold is a long-term asset, investors should not panic about short-term volatility.
“Many may fear that gold prices will rise due to hike in import duty and hence hold their funds till the prices fall. But I would suggest investing by ignoring market timing and keeping in mind the long-term gains,” said Priya Agarwal, money coach at LXME, a financial platform for women.
But any exposure to gold should be done in a staggered manner over time.
Also, investors should not overlook the risks. “The subsequent reduction in import duty may bring down prices depending on the prevailing economic conditions in future,” Kapadia said.