Experts see muted demand for gold this Akshaya Tritiya — What lies ahead

Akshaya Tritiya is considered an auspicious occasion to buy gold as it is believed to bring prosperity and good luck. However, gold sales this year are likely to remain muted. The main reason is gold prices hitting a new high at Rs 63,000 per 10 grams at the retail level. Experts say that this is poised to rise further with global economic uncertainty.

According to Motilal Oswal Financial Services report, gold has seen a fantastic rally since the start of this year, posting around 10 percent year-to-date (YTD) gains. Along with global growth slowdown and geopolitical uncertainties, there are also expectations regarding slower interest rate hikes which really is a positive scenario for gold prices, the report said.

As per Motilal, these are the triggers which are supporting the market:

Geo-political tensions - Russia /Ukraine, China/Taiwan, and other geopolitical triggers keep the market jittery.

Russian/Ukraine concerns set a positive tone for safe-haven assets, and to top up, Finland was granted admission to NATO, which doubled their borders and increased the threat for Russia increasing uncertainties.

The other uncertainty that “probably” was short-lived was the US banking concerns, wherein SVB and Credit Suisse led fiasco created panic in the market and increased gold's safe-haven appeal.

On other hand, central bank policies are triggering volatility in the market. The aggressive pace of rate hikes over the last 12 months has started to deliver as the US CPI is now down to 5 percent from its peak of 9.1 percent in June 2022.

In the Indian context, gold has even doubled over the past 10 years on an absolute basis, while it has managed to deliver compounded returns of 7.5 percent. In USD terms, too, gold has been a star performer, even if one goes back to the 1970s. It has delivered returns close to 10 percent on average, for almost 50 years.

Comparing gold returns over the last 10 years for Akshaya Tritiya, gold has delivered an 11 percent CAGR. According to MCX, gold prices have moved up over 20 percent to Rs 60,200 in April 2023, from Rs 50,800 as on May 3, 2022 (Akshaya Tritiya, 2022).

Gold’s demand seldom disappoints the market, however, things are a little different on the domestic front this time around. Amidst higher prices, there is some resilience in the physical market w.r.t gold buying.

A recent study on precious metals by Windmill Capital, a wholly-owned

subsidiary of 'smallcase Technologies Pvt Ltd', highlighted that the supply and demand dynamics of gold have been changing due to the measures announced by the government during the Union Budget 2023-24.

"Gold ETFs are preferred over purchasing gold in physical forms like jewellery, coins, and bars," Windmill Capital said.

Traditionally, Indian households have showcased strong appetites when it comes to buying gold. "However, overall during this year, consumers are expected to be more cautious with their purchases due to the backdrop of rising gold prices and economic uncertainty, whereas the investors class will bank on the highly probable opportunity of rising gold prices in the time to come," said Colin Shah, MD at Kama Jewelry.

According to Windmill Capital, the equity markets are expected to remain volatile due to inflation and slowdown concerns, gold will continue to remain in focus as investors look to move towards safety.

Usually, gold acts as a hedge against inflation and protects capital when the equity markets are in a downtrend.

“Gold is expected to yield good returns in FY24 as well. Inflation is coming off highs and RBI’s pause in the last policy clearly indicates their focus is on growth. While FIIs buying into the Equity markets in the past few sessions is a boost for Equity markets, the volatility in the equity markets will keep precious

metals an attractive space to park funds," said Naveen KR, Senior Director - Investment Products, Windmill Capital and smallcase manager.

Motilal Financial Services said that they maintain a positive stance for gold and recommend buying on dips, with a target of Rs 63,000.

"There are several platforms for market participants to invest in gold based on their risk profile. From a longer-term horizon, it is advised to invest in SGB which will help to capitalise on the price rise in gold + give the investor an additional 2.5 percent interest each year, along with increased participation, as it crossed the 100 trillion mark recently," it said.

Several other modes to invest could be in form of ETFs. This can be preferred over purchasing gold in physical forms like jewellery, coins, and bars as it can be either dematerialised or traded in paper form just like regular funds on the stock exchange.

They are purchased and sold at the same rate across India, giving them an edge over physical jewellery. There is complete transparency in prices, and these funds can be traded at any time through a broker from any location. The investor doesn’t have to worry about storage, pay locker fees, and safety issues as they hold these funds through Demat, Windmill Capital said.