A pariah is making a comeback on the global scene after an absence of over 9 years of trade and military sanctions. As the UN imposed sanctions on Iran are being lifted, one of the major oil producing countries warms up to realigning itself with the global economy. It’s good news for Iranians. They can now pump in more oil and export it to the world markets. Iran can now import eatables from outside and can think of getting its infrastructure back on track.
But for some countries Iran’s fresh start might be seriously concerning, for more than one reason. As Iran joins the crude export market soon, other oil exporting nations such as Saudi Arabia, Russia, and Venezuela among others are going to feel the heat. This comes at a time when the crude prices are already down in doldrums.
Clearly, one man’s gain is another man’s loss. This holds true in the case of gold as well. Gold performed poorly over last 2-3 years, but it seems to be featuring in the investors’ good books. As the equity markets have begun their downward spiral in major economies of the world, gold has started gaining higher ground.
Gold started off well in 2016
Data as on January 13, 2016
(Source: ACE MF, PersonalFN Research)
In the 2015 calendar year, the gold prices in India lost about 7% as against the fall of 11% in the international markets. While the Indian Rupee lost about 5% against U.S.$ in 2015. This shows that, the gold prices in India were partially supported by the weaker Indian Rupee, mainly because India imports gold to meet majority of its demand.
Within 13 days of the New Year, the gold prices have rallied about 3.6% in India and close to 2.7% in the international market. The Rupee has declined by around 1.6% against the U.S. $ during the same time. One could peg this as the usual pullback that happens when the gold reaches the lower band of the range the yellow metal has maintained for the last 5-6 months. However, many experts believe that fundamentals for gold have started improving now.
The Reasons may be...
- Growth in Chinese economy has started losing steam and as a last ditch effort to avert severe slump in exports, Chinese authorities have been devaluating Renminbi, China’s official currency. Gold is an asset that shines in gloom.
- After a long wait, U.S. Federal Reserve (Fed) hiked interest rates in its mid-December meet last year. However, the pace of change in this cycle is now expected to be very slow. The World’s largest economy can’t afford to raise interest rates in a hurry now as it may hurt its exports as well. Fall in Renminbi pushes the U.S.$ up.
- The standoff among Middle East Asian countries, especially that between the Iran and the Saudi Arabia, may spell trouble for the restored attempts to establish peace in Syria.
- If equities stay down for an extended time period or the global economy fails to recover significantly and real interest rates (i.e. inflation adjusted rates) remain negative, Gold may flourish again.
Should you buy now?
Well, whether to buy now or sometime in future is nothing more than speculation.
PersonalFN believes investors should avoid speculating about prices of any asset. In the view of PersonalFN, you should hold 10%-15% of your portfolio in gold. So, this is a time for you to revisit your portfolio and check how much investment in gold you hold. In case you have far lesser gold in your portfolio, you may take advantage of market conditions and start buying in small quantities.
As the questions of buying remains about gold in physical or a paper form, it’s your choice. PersonalFN believes buying gold in paper form through
Gold Exchange Traded Funds (ETFs) is the best option available. Alternatively, you may consider investing in
Sovereign Gold Bond Scheme launched by the Government, as and when it’s open for subscription.
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