There are falling rates of fixed deposits and rising volatility in the equity market. Together, these factors are prompting market experts to advise investors to allocate greater amounts of their portfolio to gold exchange-traded funds or ETFs. Fixed Deposits have for a long time served as a safe mode for all retail investors to park their money. However, they are now losing their appeal as a result of their falling interest rate cycles. The FDs that are for a short-tenure is similar to saving account rates. Even SBI, which is the largest lender of the country, is offering only a 2.9% interest on FDs that have a maturity period between seven and 45 days. This is similar to the 2.7% interest that is offered on the savings account.
In the past year, gold ETFs have given higher returns in the range of 40 to 46%. Consequently, the attractiveness of gold is increasing, providing strong reasons for investors to remain invested in gold.
The equity market has posted a smart recovery from the lows of March 2020. However, the projection of economic contraction in the present fiscal year has put a question mark on the earnings growth of many companies. In the medium term, this will keep equities volatile.
Since 2020, gold prices have gained 20%. Presently, it is trading at around INR 46,700 per 10 grams. As per experts, these trends will remain intact in the coming quarters.
The current gold rally is being led not by traders, but by investors’ mentality. Real interest rates are turning negative. Currencies are getting devalued, which has reduced purchasing power. Along with trade-related tensions between the US and China, gold prices should now be supported.
A 27% return on gold prices in 2020 is expected. It is also expected that gold will record a high of around INR 52,200 per 10 grams by the end of 2020.