In a week marred by escalating tensions between Israel and Hamas, gold prices in India witnessed a notable increase, even a rise of Rs 140 in a single day on October 12. Since Israel declared war on October 6, 2023, until October 13, 2023, gold prices rose from Rs 4,875 to Rs 5,139. While the upward trend continued, a brief respite was observed today, on October 16, 2023, as reports of a temporary ceasefire emerged.
Lead Up To War & Price Surge
Gold prices have been consistently elevated, hovering above Rs 62,000 per 10 grams in India for approximately a month. However, they saw fluctuations, including a dip from Rs 5,185 to Rs 4,870 in the two weeks leading to September 20, 2023, as per data from the World Gold Council. The data suggests that the conflict triggered the recent surge, with prices spiking from October 6.
Gold is considered a safe-haven asset during market volatility and heightened risk. An inverse correlation exists between gold and equity markets, such that when stock markets decline, individuals often shift their investments from equities to gold. This is due to gold's low correlation with equity and sometimes negative correlation with debt as an asset class, offering a hedge against traditional portfolios.
However, despite the ongoing conflict, the gold price experienced a plunge of Rs 350, settling at Rs 60,150 per 10 grams in the national capital on Monday amid weak cues in international markets, according to HDFC Securities. In the global markets, gold and silver were quoted lower at USD 1,912 per ounce and USD 22.50 per ounce, respectively. "Gold failed to capitalise on the previous week's strong gains as traders locked in their profits after a recent price rally," Saumil Gandhi, senior analyst of commodities at HDFC Securities, said.
This can also be partially attributed to reports of a ceasefire in south Gaza by Israel.
Investors exploring options in this volatile market can consider various investment avenues.
Gold ETFs: These funds track the price of physical gold in the domestic market and offer an opportunity to gain exposure to gold without owning the physical metal. Each unit of a Gold ETF corresponds to one gram of physical gold, making it accessible to investors of all sizes. Investors can sell Gold ETFs on the stock exchange through a broker, using a demat and trading account. They are considered a tax-efficient way to hold gold, with income treated as a long-term capital gain.
Sovereign Gold Bonds (SGBs): These long-term investments offer a cost-effective way to buy gold, free from additional charges like GST. The tenure is over eight years, with usually an option to exit after five years. Investors typically earn a 2.50 per cent annual interest rate. The redemption value of an SGB is determined based on the prevailing market price.
Gold Mutual Funds: These funds invest in gold ETFs and gold mining companies. They track the value of units of gold exchange-traded funds, which in turn reflect the value of physical gold.
They do not require a demat account and can be invested through a systematic investment plan (SIP).
Digital Gold: Several companies offer digital gold in India, including MMTC-PAMP, Augmont, and SafeGold. Platforms like mobile e-wallets, broking firms, and financial institutions offer it. A digital gold investment is certified pure, safe, and fully insured, and its return depends on the market price of physical gold.
Buying or selling digital gold in denominations as low as one rupee is possible anytime. Due to the lack of a regulatory body such as SEBI or RBI, digital gold lacks regulatory oversight.