The tradition of Indian households buying gold on Dhanteras has become one of the best performing investments in recent times. Gold has given a whopping 30.6% return over the previous Dhanteras in just a year; the total return is 56.8% if you had invested in the metal 2 years ago (in 2022) on Dhanteras day.

Not only do the short-term returns look impressive, but even the yellow metal’s long-term returns are usually in the double digits. Such a strong performance will encourage many more people to invest in the yellow metal around Diwali.

Historically, gold has seen multiple price corrections and stagnation for years. Good performance from the recent past therefore does not guarantee higher returns in the future. If you plan to invest in gold, you need to weigh your options and understand whether prices will continue to rise.

A major reduction in customs duties cannot stop the rise in gold prices

The luster of gold has not diminished despite the government sharply cutting customs duties from 15% to 6% in the budget presented in July this year. A correction in gold prices that took place after the announcement of the reduction in customs duties in the budget is now a thing of the past. “After the duty cut, gold prices in India initially fell but have since recovered sharply. From Rs 68,000 per 10 grams in July 2024, gold has recovered to Rs 76,000 per 10 grams in October 2024, registering an increase of almost 12%,” said Narinder Wadhwa, Managing Director, SKI Capital.

Gold prices are now more closely linked to international price movements

The short-lived correction has more closely linked the gold price in India to the global gold price. “Since India imports most of its gold, lower tariffs reduce import costs, narrowing the gap between local and global prices,” said Renisha Chainani, chief research officer at Augmont. “As a result, fluctuations in international gold markets are now more likely to be reflected in domestic prices in real time. In addition, global factors such as changes in US interest rates and geopolitical developments will have a more direct impact on the Indian gold market.”

Gold prices are now more in line with international trends. “Since October 2024, gold prices in India have been around Rs 76,000 per 10 grams, reflecting global price movements. While alignment with international prices has strengthened, domestic factors such as the rupee-to-US dollar exchange rate and local demand continue to impact prices,” Wadhwa said.

Gold Price Going Forward: Demand from central banks is expected to remain high

One of the most prominent factors determining the direction of gold prices is the amount of purchases made by central banks, which are the largest buyers of gold. “Central banks have increased their gold reserves to protect against global economic uncertainty and inflation. According to the World Gold Council, central banks will collectively purchase more than 1,000 tons of gold in 2023. This trend is expected to continue as gold is seen as a safe store of value, especially during volatile geopolitical periods,” says Wadhwa.

It is unlikely that central bank demand will fall substantially. Surendra Mehta, secretary of the India Bullion and Jewelers Association (IBJA), says central banks will give more weight to gold as long as the current armed conflicts continue.

Chainani says: “Central banks will likely continue to increase their gold reserves in 2024. Surveys and data show that, despite high gold prices and already substantial purchases in recent years, many central banks – especially those from emerging markets – plan to maintain or even expand their gold reserves. their gold holdings. Key drivers include the need to diversify reserves, hedge against economic uncertainties and reduce dependence on traditional reserve currencies such as the US dollar. Moreover, concerns about geopolitical risks and shifts in global currency dynamics are further encouraging central banks to increase their gold allocations.”

Will the gold price lose momentum in the near future?

While gold’s historical returns have been very good, the question every investor wants an answer to is whether this will repeat itself.

“Further growth will depend on several factors, including international gold prices, central bank policies (particularly US Fed decisions) and festive shopping trends in India. If inflation persists or geopolitical tensions rise, gold could see further gains as a safe haven asset. Gold prices are heading towards USD 3,000 (~Rs 85,000) (i.e. 10% higher) in the next six months on strong investment demand,” says Chainani.

Gold is considered a good hedge against economic uncertainties. An emergence of a large-scale conflict anywhere in the world or an economic downturn often works in favor of the gold price. “Whether prices will continue to rise depends on global economic conditions, inflation and geopolitical tensions. Gold tends to be a strong asset in times of war and uncertainty, which could push prices higher, possibly above Rs 78,000 if geopolitical risks escalate,” says Wadhwa.

The ongoing conflict in the Middle East is likely to continue for some time. “As long as tensions in the Middle East continue to escalate, gold prices will continue to rise,” said IBJA’s Mehta. He also hints that the US economy is entering a recession and that the gold price is therefore rising.

Should you buy gold this Dhanteras?

Gold offers a good option to hedge your investment portfolio against inflation and economic uncertainties. “Dhanteras is traditionally an auspicious time for buying gold, and with a price of around Rs 76,000 per 10 grams as of October 2024, many investors may consider buying gold. Despite the higher price, gold remains a solid hedge against inflation and geopolitical uncertainty. For those looking to diversify their portfolios, buying gold during Dhanteras can be beneficial, provided they evaluate their long-term goals and risk tolerance,” says Wadhwa.

Investors living in a country like India are better off if they retain some exposure to gold.

The October 2024 edition of NETRA, a monthly report from DSP Asset Managers, states: “Including gold in a portfolio acts as a hedge against volatility, protecting against risk while improving overall returns. For investors in emerging markets, gold offers both stability and growth potential in uncertain times.”

While festivities may be an excuse to make such a purchase, it will help you diversify your investment. “If you’re looking for long-term stability and portfolio diversification, investing in gold during the holidays can be beneficial,” says Chainani. “Investors may consider buying this Dhanteras gold given its value as a long-term hedge against inflation and economic uncertainty. Despite high prices, gold retains its appeal due to its seasonal demand, cultural significance and its role in portfolio diversification. As central banks continue to build up gold reserves, prices are likely to remain stable or rise in the long term.”

Which form of gold best suits your investment?

You have many options to invest in gold such as bullion, coins, jewelry, gold funds, gold ETFs, gold government bonds, digital gold and so on. If your goal is investing, you need to make sure you invest in the most efficient way possible. “For most investors, gold ETFs or gold government bonds are the best options due to liquidity and tax benefits, although no new SGBs have been issued; only the earlier issues are available in the market,” Wadhwa points out.

Since the government has not issued any new SGBs this year, it is better to look at other options. “Gold ETFs and digital gold are good alternatives for those who want to avoid storage issues while still benefiting from a potential price increase,” says Chainani.

Should you invest in gold in bulk or diversified?

The price of gold is known to fluctuate significantly. So it is better to invest in a diversified manner. “A diversified investment strategy through SIPs is generally recommended to limit price volatility and avoid timing risks. Bulk buying may suit those looking for specific festive deals but may expose investors to short-term market fluctuations,” Chainani added to.

Diversified investing is a better way of investing because you can also increase or decrease the amount. “In terms of strategy, diversified investments help reduce the risk of volatility over time. However, for those expecting further price hikes due to geopolitical uncertainties, bulk investments at the current price level of Rs 76,000 could be a good strategy,” Wadhwa added.

“The recent rise in prices was a momentum play following the escalation of the conflict in the Middle East, with Israel preparing to act against Iran’s missile attack. The interest rate cut by the US FED, gold purchases by central banks, the upcoming US elections and geopolitical risk remain the main problems. The main supporting factors for precious metal prices may look for accumulation with any decline in prices. This could be beneficial for a strategic allocation to gold as an investment in the portfolio,” said Tapan Patel, Fund Manager-Commodities at Tata Asset. Management.