-Says Chirag Mehta, Senior Fund Manager, Alternative Investments
Chirag has always been bullish on Gold as an asset class. Read on as he answers why post Covid outbreak it has become imperative for an investor to invest in this yellow metal.
1. Gold is at an all-time high. Are you surprised?
Not at all. Even before Covid-19, macroeconomic factors like slowing global growth and US-China tensions were favourable for gold and we were bullish on the metal. After the pandemic gained form and the stock markets crashed in March, gold too moved in tandem with equities temporarily. But even then we informed our investors that when there is a sharp fall in asset markets, investors can only sell what is liquid and profitable and thus the selloff was an excellent opportunity as fundamentals further turned positive for gold. After that hiccup, as we expected, gold has done tremendously well giving returns of over 25% in 2020. In our webinar ‘Will gold touch new highs?’ we had reinforced our views that as the crisis aggravates, gold will play a risk-reducing return-enhancing role, which it has.
2. Where is Gold headed in the coming years, post Covid-19?
Fundamentally, gold prices should clearly head higher. The extent of economic damage caused by the pandemic has been severe. The global economy will face a protracted economic deceleration, even after the pandemic cools down. This will warrant accommodative policies like bond-buying programs and low interest rates to reignite economic activity over the next few years. As central banks print unprecedented amounts of new money, gold prices should appreciate further.
Gold benefits from economic distress as investors tend to shun risk assets. Low interest rates compel investors to search for assets like gold that maintain real value. And with too much liquidity floating around, there is a probability of higher inflation over the next few years, lowering the purchasing power of the currency you hold and making gold a preferred monetary asset.
3. Is this the right time for investors to add to their Gold holdings? How much Gold should one own?
The macroeconomic backdrop has become favourable for gold. Economic deceleration, higher risk and uncertainty, low/negative interest rates and competitive debasement of currencies due to unprecedented stimulus measures will likely be extremely supportive of gold. Though gold’s behaviour in near term will depend on the speed of global economic recovery and the duration and extent of stimulus, the metal will continue to play a risk-reducing, return-enhancing role over the long term. Current prices could still be a good entry point for investors to build the bulk of their allocation, say at least 50% of intended allocation and the rest they can accumulate in a staggered way to complete the 10-15% allocation of their portfolio.
4. How should one take exposure to Gold? Gold bars, or via ETFs?
Purity is always a concern when buying physical gold. In addition, the purchase of gold bars comes at a premium of 5-15% above gold prices. This amount plus the GST paid remains irrecoverable on sale.
Gold ETFs are listed on the exchanges and invest in physical gold. Each unit of a Gold ETF represents 1/2 gram of 24 karat physical gold. Investors in Gold ETFs do not bear any making charges or premium. Also, they don’t have to worry about purity, storage and insurance of gold. Moreover, Gold ETFs are traded on the exchange at the prevailing market price of physical gold, thus investors can buy or sell holdings at close to the market price, without paying a premium on purchase or selling at a discount. Mutual fund investors can invest in a Gold ETF via the Gold Savings fund.
5. Recently China had a massive Gold fraud issue. How can an investor in India protect themselves against this risk?
When buying physical gold, purity is always a question as gold is prone to impurities due to malpractices, considering that it has changed hands several times. One sure way to tackle this purity issue is to invest in gold via the Quantum Gold ETF where every unit is backed by 24 karat physical gold sourced only from London Bullion Market Association accredited refiners, which are known for the best quality of gold in the world. We purchase gold that is imported through authorized channels to ensure that during the process of importing, the gold does not leave the custody of accredited vaulters. In addition to this robust purchasing process, there are regular statutory audits mandated by SEBI, custodian checks and the fund management team at Quantum visits the vaults every month to check all the gold holdings. Most importantly, we undertake purity tests for all the gold held under the ETF, and guarantee that gold held by the fund is indeed pure.
Risk Factors: Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
Please visit - www.QuantumMF.com to read Scheme Specific Risk Factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the scheme’s objective will be achieved and the NAV of the scheme(s) may go up or down depending upon the factors and forces affecting securities markets. Investment in mutual fund units involves investment risks such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the Sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited (AMC). The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.