Gold buying on Dhanteras 2023: 21% return over last year, is it a good time to invest in Gold? However, it is not only the auspicious nature of this activity which draws people but it has been a well rewarded investment in in the long run. Gold return over long term has be quite attractive which adds reason to an emotional act
Gold has its own charm as it is not only jewellery but also an investment asset class. However, buying gold on Dhanteras can bring in a different level of fervour because the day is considered an auspicious one. While it is difficult to measure the happiness people derive from this auspicious investment, the returns can be quantified.On November 7, the cost of gold was Rs 60,579 for 10 grams. This was a whopping 21% rise from the price seen on the day of Dhanteras last year, when the rate of 10 gram gold (999) was Rs 50,062, according to the India Bullion and Jewellers Association Ltd. While the investment gives a handsome short-term return, it is worthwhile to know the return the yellow metal purchased on Dhanteras has delivered in the long run, and also if it makes sense for you to invest in gold on this auspicious day.
Dhanteras gold buying offered good returns in the long run
The long-term returns of gold purchased around Dhanteras have been largely in double digits. “Historically, gold has always given good returns and hence it is the best hedge against other asset classes,” says Surendra Mehta, National Secretary, IBJA.
This makes Dhanteras gold investments fascinating for long-term investors. The 5-year return on such investment in 2018 would be 13.9%; however, the return comes down to 7.1% for investment done in 2013. The returns are highly rewarding for 15-, 20- and 25-year periods as these are above 11%.
Dhanteras day gold buying - Historical returns in 2023
Year
Dhanteras
Price (10 gm, 999)
Holding Period
Absolute Return
Annualised Return (CAGR)
2022
Oct 22 (Saturday)
Rs 50,062
1 year
21%
21.4%
2020
Nov 13 (Friday)
Rs 50,645
3 years
20%
6.3%
2018
Nov 5 (Monday)
Rs 31,760
5 years
91%
13.9%
2013
Nov 1 (Friday)
Rs 30,510
10 years
99%
7.1%
2008
Oct 26 (Sunday)
Rs 11,925
15 years
410%
11.5%
2003
Oct 23 (Thursday)
Rs 5,830
20 years
942%
12.4%
1998
Oct 17 (Saturday)
Rs 4,360
25 years
1,294%
11.1%
1993
Nov 11 (Thursday)
Rs 4,598
30 years
1,222%
9.0%
Returns as on Nov 7, 2023, for gold (999 purity) price at Rs 60,772 per 10 grams; Gold price source: IBJA
The factors that are pushing gold prices up
Gold has traditionally been one of the most preferred investment assets for many people in India. This is because the yellow metal is considered one of the best hedges against uncertainty and inflation. However, gold prices have been on a roller-coaster ride this year. “The volatility until now has been fierce as gold marked a near-all-time high of $2,070 at the start of this year and then reversed, marking lows close to $1,800, and is now back to $2,000,” says a report from Motilal Oswal Financial Services (MOFS).
The global economy is going through one of the biggest turmoils seen in several decades and this has worked largely in favour of gold prices. “Gold and silver have witnessed sharp swings this year, as a result of a few major fundamental changes like, central bank policies, geopolitical uncertainties, debate between hard & and soft landing, higher buying interest in riskier assets and volatility in Dollar Index & Yields. Geopolitics and the central bank’s policy position have taken centre stage,” says the MOFS report.
The most critical issue investors would be interested in is whether the geopolitical frictions will have more impact on gold. “Gold market has already discounted the Russia war. If the Israel war escalates, then gold prices would move up further,” says Mehta.
Higher inflation and higher bond yield are also pushing the gold prices
The report from MOFS says that the monetary policy action from major central banks have been quite aggressive; the US Federal Reserve has already raised rates by 525 basis points (bps) since last year, leading to an ease off in inflation. However, costs relating to wages, energy and food are increasing concerns for major central bankers, influencing a sustained hawkish stance. Economic data points such as GDP, retail sales, employment and others were better than expected, showing the economy’s resilience. Higher interest rate scenario is a headwind for non-yielding asset gold. Hence, a pivot from the current stance is critical for gold prices to sustain their upward trend.
Overall demand for the yellow metal to remain robust
India has been one of the biggest consumers of the yellow metal and the situation is unlikely to change in the near future. “Gold consumption in India increased by 10% to 210.2 metric tonnes during the July-September quarter of the calendar year as compared to 191.7 metric tons in the previous year for the same period. This was driven by improvements in consumption of gold for wearable purpose as well as an attractive asset class for investments, thus boosting the overall demand due to price corrections,” says Colin Shah, MD, Kama Jewelry.
Central banks are buying more gold this year
Central banks across the globe are buying more gold, pushing the prices up. “Major central banks around the world have been steadily increasing their gold reserves, which has boosted sentiment for gold,” says the MOFS report. “We have only seen two months this year where central banks were net sellers; the pace of buying so far this year suggests that central bankers are on track for yet another strong annual addition. Strong buying from China, Poland, Turkey, Kazakhstan, and a few other countries has resulted in a net total of around 800t in this year.”
Any remarkable drop in gold prices unlikely in the festive season
If you are waiting for any significant correction in gold prices to invest, it is likely that you may not get such an opportunity in the short run. “India, being the second-largest gold consuming nation in the world, typically has a higher consumption in the second half of every year than in the first half, coinciding with Diwali in October (beginning of Q4 of the calendar year). With the festive buying going on in full swing, the demand for yellow metal in the domestic market will remain unimpacted and continue to strengthen owing to the upcoming Dhanteras and wedding season,” says Shah.
How you should manage your gold investment
Gold has always worked well to achieve diversification in the investment portfolio. Though Dhanteras gold investment has historically given higher returns, you should not go on an overdrive with the purchase. Most financial planners suggest that investors keep the gold exposure in their portfolio in the range of 5%-15%.
Another factor investors should guard against is bulk investment. Even if you have a large surplus to invest, it would be better to diversify it into multiple asset classes rather than investing the whole amount in gold at one go. Even if you want to invest only in gold, go for a staggered investment.
“Scattered purchase will reduce the risk and bring down the average price of gold for investors,” says Mehta.
Investing in gold on the day of Dhanteras every year for a long period is in itself a traditional way to invest in the yellow metal in a staggered manner. It will help you to achieve the diversification goal and also invest in gold in a staggered manner over a long period.
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This story originally appeared on: India Times - Author:Faqs of Insurances
