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    Oh gold! Why is Rakesh Jhunjhunwala asking you to invest in yellow metal

    Synopsis

    The massive selloff in the equity market at the start of the year and the adoption of negative interest rates in Japan and the euro zone has contributed to this surge.

    ET Online
    NEW DELHI: When the biggest equity bull of them all – Rakesh Jhunjhunwala – makes a case for gold, you have to sit up and take note.

    “If you can, put one part of your portfolio in gold, because that is one asset class which can be a hedge against negative interest rates. I mean, I’ll go crazy when I have to pay a bank to keep money with the bank,” Jhunjhunwala told ETNow in an interview.

    “There is going to be a lot of uncertainty in the world, and it is a good hedge. I am not saying put a major part of your portfolio in it, but maybe a low single-digit allocation,” he said.

    Calendar 2016, so far, has been the year of gold.

    Also read: Indian market is very fertile, but you need patience to reap great returns

    The precious metal, in its role as a safe haven asset, has given 20.21 per cent return so far, its best quarter in 30 years, which is miles ahead of domestic benchmarks like Sensex and Nifty50, which have generated negative returns of 1.7 per cent.

    The massive selloff in the equity market at the start of the year and the adoption of negative interest rates in major countries like Japan and the euro zone has largely contributed to this surge.

    Recently, billionaire hedge fund managers Paul Singer and Stan Druckenmiller made a case for the precious metal, which till 2015 was suffering from an extended bear market of four years – worst in its history.

    "It makes a great sense to own gold. Other investors may be finally starting to agree," Singer wrote in an April 28 letter to clients, a Bloomberg report showed.

    "Investors have increasingly started processing the fact that the world's central bankers are completely focused on debasing their currencies," he said.

    That’s a case Rakesh Jhunjhunwala makes, too. “Gold will do well when every country in the world wants to bring down its currency,” he said.

    Also read: Morgan Stanley sees Sensex hitting 32,500 in bull-case scenario; top 20 bets

    What’s the way ahead?
    “The market will try to assess whether the weakness in the dollar will continue,” said Chirag Mehta, Senior Fund Manager - Alternative Investments, Quantum Mutual Fund.

    The US dollar and gold have an inverse relationship. As per a report of the International Monetary Fund (IMF) report in 2008, almost 40-50 per cent move in gold is determined by the movement in the dollar.

    Mehta believes narrowing or expansion of the monetary policy divergence of the US Federal Reserve, the Bank of Japan and the European Central Bank going ahead will determine the fate of the precious metal.

    “Real interest rates will probably stay low even if the US Fed raises borrowing costs in response to high inflation. Gold tends to perform well in declining or negative real interest rate environments. We anticipate more buying to emerge on any meaningful pullback, thereby supporting gold prices,” he said.

    How to invest? Gold ETFs, buddy!
    India loves gold more than it loves its politics or cricket. But, buying patterns have changed as investors are finding more traction with gold ETFs.

    A recent World Gold Council report said gold demand in the country rose 21 per cent in the first quarter of 2016 on the back of increased inflows into gold ETFs.

    "This increase was driven by huge inflows into exchange traded funds fuelled by investor concerns regarding economic fragility and uncertain economic conditions," the World Gold Council's 'Gold Demand Trends' report said.

    Gold ETFs have given return of more than 19 per cent in the year so far leaving behind their equity peers. (See Chart)

    Image article boday


    “If you look at high yields ETF globally there has been a lot of outflows from high yield ETF, meanwhile, ETFs that have been gaining some inflows are gold ETF, again suggesting that there is some positioning for risk off,” said Nizam Idris, Head of Strategy, Macquarie Bank.

    “As a manager for gold fund, I believe investment in Gold ETFs is a good diversification option for any portfolio and can helping them reduce the overall portfolio risk in the turbulent financial times that we live in,” suggests Chirag Mehta.

    After seeing off its worst bear market, Gold it seems is here to say and when you have equity bulls, grudgingly, making a case for the precious metal it is about time you paid heed.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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