Tag: gold price

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Editorial

Top 5 Ways To Invest In Gold

Gold has a vague history. In times before the 1970s, many powerful countries backed their currency with gold. This was known as Gold Standard. In the United States, every dollar could be exchanged for 1.5g of gold. The world has gotten rid of the Gold Standard for good. Now, gold has become a tradable commodity instead of a currency. Had you bought Rs 1 lakh worth of gold in 2010, it would have been worth Rs 2.60 lakh today. Gold prices have increased by more than ~160% in the past decade. Investing in gold has its own benefits. With innovation and technology, you need not step outside your home to buy gold. In this piece, we explore what are the different ways one can invest in gold.

Types Of Gold Investments

1) Physical

One can use the good old way of walking into a jewelers shop and buying gold jewelry, biscuits, coins, etc. However, you might end up spending more on it since you’ll have to pay for the making charges and also account for a loss of quality with time. In the case of storing in a bank locker, one might end up spending on the locker charges as well. Physical gold might be misplaced, forgotten, or stolen. You might also need to buy a minimum significant amount of gold which might require a high capital investment.

2) Digital Gold

One can invest in digital gold for as little as Rs 1.  Many entities like Digital Wallets, Brokerage Firms, and Proprietary Jewelers offer digital gold. These include – PayTM, PhonePe, Motilal Oswal, Groww, Kalyan Jewellers, Tanishq By Tata, and many others. One has the option of redeeming the digital gold into physical gold. 

One should take note of the ‘spread %’ involved in buying digital gold. This can vary from 2-6% depending on the merchant. A spread is a difference between buying and selling price of digital gold at a given point in time. The buying price for digital gold is always more than its selling period at a given time. The spread amount is used for storage, insurance, trustee fee, etc. 

A 3% GST is levied during the purchase as well as the sale of digital gold. 

3) Gold ETFs

Gold Exchange Traded Funds or Gold ETFs are funds that are tradable on stock exchanges and require a Demat account. Unlike digital gold, they do not have a spread in buying and selling price at a given time. Units of a Gold ETF are backed by real gold. They can be bought and sold at their traded price during market hours. Unlike physical and digital gold, they do not attract GST at the time of buying and selling. Gold ETFs give an edge over digital or physical gold in terms of taxability and cost of holding. 

4) Gold Mutual Funds

Gold Mutual Funds invest in Gold ETFs or gold-related equity shares. Unlike ETFs, they do not require a Demat account. The minimum ticket size of a gold mutual fund is lesser than that of a Gold ETF. If you exit a gold mutual fund before the lockin period, you might be charged an exit load. Gold Mutual Funds can be SIP-based, which means you can invest a small amount over a given period of time.  

5) Sovereign Gold Bonds

Sovereign Gold Bonds are bonds issued by the Reserve Bank of India on behalf of the central government. These can be bought and sold on exchanges. Each unit of an SGB is backed by 1 gram of gold. An SGB pays a regular dividend of 2.50%-2.75% per year semi-annually. An SGB if held till maturity or between 5-8 years of the issue is tax-free. When investing long-term, an SGB as compared to other gold investments proves to be the most beneficial in terms of taxability. For premature redemption, a capital gains tax of 20% is applicable on SGBs.

Since pre-historic times, gold has been a safe haven asset. A person would accumulate gold and sell it in times of crisis to make things work. Once can expect gold prices to inflate during an economic crisis and slump during economic growth. Timing is a very crucial factor while investing in gold in order to maximize profit. Each gold investment type is linked to the market performance of gold. Factors such as liquidity, transferability, and taxability make them different from each other. One should diversify their investments even in gold depending on their short and long-term priorities. Until then, stay home, stay safe, and do thorough research before investing.

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Editorial

Why Are Gold Prices Falling After Touching A Record High last September?

source: shutterstock

In September 2020, gold prices touched a record high of Rs 58,000 per 10 gram. In times of crisis and uncertainty, people tend to buy more gold as it is a risk-haven and comparatively less volatile. There were many reasons why gold prices hit record highs in 2020. The US-China Trade War, negative US bond yield, geopolitical tensions, and uncertainty around the COVID-19 pandemic to name a few. 

Fast-forward to a few months later, gold prices have come down significantly to a 10 month low. As of 6th April 2020, gold is trading close to Rs 45,500 per 10-gram level, which is around Rs 13,000 less than the record high of Rs 58,000. The way the gold prices were soaring, a correction was definitely expected but there is much more to it. There are some economic factors, market factors, and other global factors that have come into play. 

Reason 1: Investors Have More Risk Appetite

During the COVID-19 lockdown, businesses were shut, unemployment was high, global economies were down, households did not have money to spend and had to depend on government support for expenses.

Once things were a little better, governments all across the world release stimulus packages. Central banks across the world reduced interest rates to put money into the system. Loans were offered at low-interest rates and moratoriums were given on NPAs. All of a sudden, markets were flooded with liquidity.

Gold, on one hand, is a risk haven. People invest in gold during times of uncertainty, since gold is globally accepted and can be sold during times of crisis.  When there is too much money in people’s hands, they are likely to invest it in more risky assets. The stock market is one of them. The global stock markets managed to touch record highs. NIFTY and SENSEX touched their record highs as well.

Reason 2: Dollar Zooming 

For the past few years, gold and the US Dollar have had an inverse relationship. The current increase in the US dollar with respect to other global currencies has caused gold prices to decrease. This is because if the US dollar becomes stronger, gold will become relatively more expensive in other currencies causing demand to reduce and therefore the price. Conversely, if the US dollar gets weaker, gold becomes relatively cheaper to buy in other currencies, and the demand increases, and therefore the price. However, it must be noted that gold and the US dollar CAN move together in some cases. 

Reason 3: Rising Bond Yield

In August 2020, the US 10-Year bond yield was ~0.52%. The yield has now risen threefold to ~1.6% in March 2020. When bonds return a higher yield, the cost of holding gold becomes higher. Investors will prefer holding stocks and bonds over gold, as these would give a better return than gold. Investors will start diluting their gold holdings and start pouring that money into the bond and stock market. This will cause gold prices to decline.

Reason 4: India cuts custom duty from 12.5% to 7.5%

In the 2021 Budget Session, the import duties on gold were slashed from earlier 12% to 7.5%. An additional 2.5% cess was proposed in the form of Agricultural and Infrastructure Development Cess(AIDC). After the announcement, gold futures on MCX slumped 3% or about ₹1,500 per 10 gram.

The decrease in gold prices has seen a lot of accumulation happening which helped in price recovery. Prices are up by almost Rs 2000-Rs 2500 from the low of Rs. 45,500 per 10 gm. The second wave of COVID-19, rising lockdown measures, uncertainties over vaccines, rising debt, and liquidity are supporting factors of gold price rise. A question remains, should you invest in bonds over gold? The US 10-year bond yield has been at its peak recently, bond prices are low, yields are high. One can either choose to profit from the volatility of the gold market or choose to invest in a rather consistent instrument like bonds. Investors should watch out for inflation numbers, long-term bond yields, US Fed Reserve Rate, and other global factors that might affect the spot price of gold. 

So the next time you see a family member wondering why gold prices are moving like it is, you will know the answer!

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Editorial

5 Reason Why Commodity Prices Are Increasing and Impact on Stock Market

Last year, the prices of commodities such as crude oil, silver, copper, etc saw a significant fall due to the Covid-19 pandemic. All major economic activities were disrupted as countries went into complete lockdowns. Now, the situation has more or less turned for the better, and commodity prices are witnessing a strong recovery. Copper prices have rallied by over 60% since the beginning of the year and have hit their 10-year high. The price of Brent crude oil, which fell to $20 per barrel in April 2020, has shown a sharp rise to ~$65 (as of Feb 23). The prices of Silver and Platinum have also shown monumental gains over the past year. 

Let us understand some of the reasons behind this surge in commodity prices.

Factors Behind the Rally in Commodity Prices

  • During a period when countries were under strict lockdowns, China began to open up its factories. They had a headstart in manufacturing activities. In fact, the Chinese factory output in November 2020 hit a 20-month high. Thus, there was a huge rise in demand for commodities from the country, which led to a rise in its prices. There were also reports stating that China has been hoarding steel and is controlling its prices.
  • As lockdown restrictions were lifted globally, the demand for industrial commodities started rising. The different sectors of the economy began to ramp up production activities. At the same time, supply chain disruptions or logistical issues continued. Commodity traders blamed the global container shortage as a major reason for high transportation costs. This ultimately led to a surge in the prices of essential commodities such as steel, copper, tin, and aluminium.
  • Recently, oil-producing nations have limited their supply to energy-dependent countries such as India. This has caused crude oil prices to increase exponentially.
  • The passing of the $1.9 trillion US stimulus package can also be attributed to the sharp rise in commodity prices. Financial analysts state that the package would lead to further demand for commodities as people will spend more (or more money will be in circulation).
  • Investing in the commodities market is a great way to diversify your portfolio. Over the past few months, hedge funds have invested billions of dollars into this market. This is primarily due to the optimism surrounding vaccine rollouts and economic recovery. It has been recommended as one of the best asset classes to hedge against inflation, leading to a sharp increase in returns.
  • As most countries are on the path towards building renewable energy infrastructure, the demand for metals is at an all-time high. This is driven by an increase in the production of batteries, solar panels, and electric vehicles (EVs).

What is the Impact of Rising Commodity Prices?

The commodities market is receiving a lot of attention from investors around the world. They are collectively pulling money from the stock markets and infusing billions into commodities (due to its high returns). Investment groups and hedge funds are also investing heavily in bonds due to higher yields. However, this may be a short-term phenomenon until financial institutions reshuffle their portfolios.

As India came out of its Covid-related lockdowns, we witnessed pent-up demand for commodities- which led to a further rally in its prices. This has caused fears of inflation in our domestic market. The high price of steel has heavily impacted the automobile and infrastructure sector. We saw companies such as Maruti Suzuki, Tata Motors, Mahindra & Mahindra, and Hero MotoCorp introducing price hikes for their vehicles in January. The continuous surge in prices of raw materials would also affect the real estate sector in the long term. Developers would face an increase in overall project costs, and homebuyers would have to pay more for acquiring assets. The general rise in demand with a fall in supply is helping no one.

One of the most serious issues that Indians face today is the continuous increase in fuel prices. The price of petrol has even crossed the psychological barrier of Rs 100 per litre in several cities. The rise in global crude oil prices and high taxes (or excise duties) are concerning. This ultimately leads to a surge in prices of essential items such as food. With no solution in sight, the middle-class and poor sections of society continue to suffer. Let us look forward to seeing how the situation unfolds in the weeks to come.

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Pfizer’s Covid-19 Vaccine Prevents 90% Infections – Top 10 Global News

1. Joe Biden Wins U.S. Presidency After Bitter Contest With Trump

Joseph Robinette Biden Jr. has defeated Donald Trump to become the 46th U.S. president, unseating the incumbent with a pledge to unify and mend a nation reeling from a worsening pandemic, faltering economy and deep political divisions. Biden’s victory came after the Associated Press, CNN and NBC showed him winning Pennsylvania and Nevada and gaining more than the 270 Electoral College votes needed to secure the presidency. Biden was at home with his family when he learned he’d won the election, a campaign aide said.

2. Stocks Surge to All-Time High on Vaccine Progress

The clearest sign yet of progress on a Covid-19 vaccine is fueling a rally across global stock markets. The strongest gains in the market were among small-cap stocks, which have been hit hard by the economic toll of lockdowns. Futures on the Russell 2000 Index of small-cap stocks jumped 7% and S&P 500 contracts rose 4.2%. Nasdaq 100 Index futures pared gains, but were still up 0.5%.

Futures on the S&P 500 Index surged 3.4% as of early morning NY time.

The Stoxx Europe 600 Index surged 4.5%.

The MSCI Asia Pacific Index increased 1.1%.

The MSCI Emerging Market Index gained 1.7%.

3. Pfizer’s Covid Vaccine Prevents 90% of Infections in Study

The Covid-19 vaccine being developed by Pfizer Inc. and BioNTech SE prevented more than 90% of infections in a study of tens of thousands of volunteers, the most encouraging scientific advance so far in the battle against the coronavirus. Eight months into the worst pandemic in a century, the preliminary results pave the way for the companies to seek an emergency-use authorization from regulators if further research shows the shot is also safe.

4. Gold set for best week since July as Biden closes in on victory

Gold headed for the biggest weekly gain since July and copper rose as Joe Biden tightened his grip on the race for the White House, while investors also weighed prospects for further Federal Reserve stimulus under the Biden presidency. Gold bullion broke out of a narrow trading range seen over the past month as uncertainty over the election and renewed stimulus hopes boosted demand for the haven. 

5. China’s Yuan Extends Best Week Since 2017 on Biden’s Victory

The yuan extended its recent rally as the dollar weakened following Joe Biden’s presidential victory in the U.S. The offshore yuan was 0.37% stronger in Hong Kong, following last week’s 1.6% surge that was the biggest gain since January 2017. The currency has been on a rise since the start of June as China’s economy rebounded, and China’s currency has rallied to a more than two-year high.

6. Global Stocks Surge to Record High on Biden Presidency

Global equities jumped to a record high amid optimism about the outlook for risk assets during a Joe Biden presidency. The MSCI All-Country World Index rose as much as 0.5% on Monday, surpassing its previous highs. After surging nearly 8% last week in the biggest rally since April, global stocks on Monday extended their gains after Biden was declared the winner of the U.S. election over the weekend. Biden in his victory speech promised swift action against the pandemic and an orderly transfer of power, though President Donald Trump is weighing legal challenges and has so far refused to concede.

7. EU Gives Green Light to Trigger $4 Billion Tariff Strike on U.S.

European Union trade ministers gave the go-ahead for EU tariffs on $4 billion (29,500 cr) of American goods in retaliation over illegal aid to Boeing, seeking to prod the U.S. to scrap its duties prompted by unlawful subsidies to Airbus. The green light paves the way for the European Commission, the EU’s executive arm in Brussels, to trigger the import levies on Monday. U.S. aircraft-related products as well as other goods ranging from spirits and nuts to handbags and chemicals were included on the bloc’s planned target list last month. The imminent tariff strike is meant to give the EU more leverage in pushing for a truce that has been elusive with the U.S. President Donald Trump, who will remain in office until Jan. 20. The tit-for-tat move may make it easier for President-elect Joe Biden to embrace longstanding European calls to settle the transatlantic dispute over aircraft aid at the negotiating table.

8. SoftBank Posts Vision Fund’s Record Profit

Masayoshi Son is making his case for SoftBank’s turnaround. The Japanese conglomerate reported a record $7.6 billion (INR 56,000 cr) profit in its Vision Fund business for the three months ended Sept. 30, a sign the fund’s investments in startups are paying off amid a broad rally in technology stocks. One Chinese startup quadrupled SoftBank’s money after going public in August.

9. French bank Societe Generale to cut 640 jobs in France, no forced redundancies

French bank Societe Generale said on Monday it planned a net reduction of about 640 positions in France but said there would be no forced redundancies. The bank said the plan would concern market activities and associated functions and would help reduce costs by about $535 million (INR 4000 cr) by 2022-2023. French business newspaper Les Echos reported on Sunday that the cuts would be mainly in the investment banking division.

10. Oil-Rich Abu Dhabi to Start Trading Crude Futures From March

Oil-rich Abu Dhabi will open a commodities exchange in March to rival those of Middle Eastern neighbours, letting investors trade its crude using futures contracts for the first time. The ICE Futures Abu Dhabi exchange will open on March 29 and offer contracts based on the emirate’s flagship Murban crude grade, pending regulatory approvals. The Atlanta-based operator of trading and clearing platforms is setting up the exchange with government producer Abu Dhabi National Oil Co. and other oil suppliers. Abu Dhabi is the capital of the United Arab Emirates — OPEC’s third-largest producer — and it holds most of the UAE’s oil. Murban crude, pumped from onshore fields, comprises more than half of the country’s output, now at around 2.6 million barrels daily.