MUMBAI: Gold's record-breaking spree, which continued for the second day on Wednesday , is unlikely to deter rich investors or so-called high net worth individuals (HNIs) from buying the metal in physical form, market experts feel. The metal hit a record high of Rs 24,593 a tola (10 gm) in Mumbai's grey market in noon trade on Wednesday.
The trend of HNI clients diversifying their portolios from stocks and bonds into gold, which began a couple of years ago, would accelerate every time gold corrects while chugging towards $1800 an ounce (31.99 gms) before or by the year-end , said Shyam Kedia, senior vice-president , Edelweiss Commodities. That translates into a price rise to Rs 26.72 lakh a kilo from Wednesday's intra-day high of Rs 24.59 lakh.
Since it caters for physical demand by wholesale gold traders, rich investors and jewellers, Edelweiss is betterplaced than many other broking firms or researchers to gauge physical demand trends of the metal, said a few brokers requesting anonymity. Of late, rich investors here too have hopped on to the gold bandwagon not only to derisk their portfolios but also reap rich rewards.
In the year to date, for instance, 24-carat gold has yielded a return of over 13% against a negative return of almost 12% by the Sens*x, the benchmark stock market index. The stupendous rise of gold has not deterred investment for the metal in physical form," said Kedia. "There are few rich investors in the market even at current records above Rs 24 lakh, but their presence would increase exponentially if the metal corrects by another Rs 750-1,500 per 10 gm. We see gold consolidating at $1,800 before or by the year end, up from current levels above $1658 but there could be a few dips on the way, which will be a time when investors accumulate the metal." Hrishikesh Parandekar, CEO, Karvy Wealth, said HNIs were buying gold as part of a defensive strategy and opted for the metal in physical form rather than the paper gold route to avoid dealing with intermediaries. "They're buying gold as a hedge against volatile currencies.
Savvy investors fear currencies like the rupee could weaken because of an economic slowdown. The risk of having an intermediary may be prompting investors to skip the ETF route and buy gold directly," said Hrishikesh Parandekar, CEO, Karvy Wealth. However, a Mumbaibased wealth advisors servicing several rich clients, added one more reason to HNIs' preference for physical over paper gold. "Several HNIs use unaccounted cash to buy gold. They will not be able to buy ETFs using cash.
This trend of buying physical gold will go up in the event of a correction in gold prices ," he added. In Mumbai, 24-carat gold was quoted at a record Rs 24,593 a tola (10gm) in the grey market on Wednesday , up from Rs 23,608 a day earlier. The metal took cues from overseas gold which surged to $1,672.8 an ounce (31.99 gms), up 0.7% from a day earlier, on fears the global economy was slipping into recession because of debt problems in the US and Europe and slowing manufacturing growth in China. Investors the world over flock to gold at times of economic or political uncertainty.
Hnis rush to buy gold as part of diversification drive from
CA ADITYA SHARMA (CA IN PRACTICE ) (16719 Points)
04 August 2011
CAclubindia
