Gold prices yesterday crossed the Rs 40 K/ 10 grams level to attain record life-time high. Many industry experts are of the opinion that gold is entering into its next bull cycle and the spot gold prices may zoom past the USD 1,950 per ounce level from the current USD 1,528.10 level. If the currency exchange rate remains stable, the gold price may touch Rs 52000/ per 10 grams.
With big looming ambiguity over the US-China tariff war situation, growing recession concerns over U.S. Treasuries 30 year bond hitting record low & volatile oil market, the gold is being seeing as safest bet.
World renowned billionaire macro investor, and founder of the Bridgewater Associates hedge fund, Ray Dalio, is advocating the need to buy gold at present changing times. In the essay published by him by the name Paradigm Shifts on July 17th 2019, he states:
“Most people now believe the best “risky investments” will continue to be equity and equity-like investments, such as leveraged private equity, leveraged real estate, and venture capital, and this is especially true when central banks are reflating. As a result, the world is leveraged long, holding assets that have low real and nominal expected returns that are also providing historically low returns relative to cash returns (because of the enormous amount of money that has been pumped into the hands of investors by central banks and because of other economic forces that are making companies flush with cash). I think these are unlikely to be good real returning investments and that those that will most likely do best will be those that do well when the value of money is being depreciated and domestic and international conflicts are significant, such as gold. Additionally, for reasons I will explain in the near future, most investors are underweighted in such assets, meaning that if they just wanted to have a better balanced portfolio to reduce risk, they would have more of this sort of asset. For this reason, I believe that it would be both risk-reducing and return-enhancing to consider adding gold to one’s portfolio”.
In this essay, Dalio implies that gold has the potential to be “risk-reducing and return-enhancing” for investor portfolios, in a macro environment where & securities may witness shrinking returns. This interpretation may be up for argument but, it may have found a solid ground with gold yielding more than 30% return over last one year period whereas domestic broader equity market is in shambles.
The biggest gainers amidst all of this are turning out be Gold ETFs & Gold Funds (see Fund Performance in Table 1.). These are an open-ended schemes, they invests in physical gold and attempts to track the domestic spot price of gold. Each unit of the scheme is approximately equal to 1 gram of gold. For the last few years, investors have mostly ignored Gold funds on basis of muted performance. As in the case always, the retail investors are looking towards these options only after recent price surge. The sensible thing to do for an investor is not to be swayed by sparkling rise of gold but actually take steady approach and make a calculative investments suiting one’s portfolio.