 Hello everyone and welcome to another episode of Entrepreneur India's Smart Investing Series. I am Shifra, Chief Correspondent with Entrepreneur India and I will be moderating today's panel. So after holding a very interesting conversation last week on the overall investment strategy that investors should follow during COVID-19, this week's episode is a little more focused on one class, which is gold. So today we've gathered here to discuss where the gold is a safe haven and investment during COVID-19. So let me start by laying out the ground rules for the attendees. So all attendees will automatically be muted, but we encourage participation. So please drop your questions in the Q&A box that you will see below your screen. So throughout the presentation, please submit content related questions and we will spend approximately 15 minutes at the end of the session to answer questions. So please wait for the discussion to end so that we can take questions from you. To open the Q&A box, you can click the Q&A icon at the bottom of your screen. So let's begin with the session and let me start by introducing our speakers. So we have today with us Ruchi Sange, who is the Senior Managing Director, Originational Client Coverage with Waterfield Advisors. Ruchi is a seasoned banker with about 21 years of work experience across institutional and private banking with Citibank India. And in addition to that, she has four years of experience in SIGMA Insurance in the US. So in her last role in Citi, Ruchi was responsible for managing key ultra-high net worth relationships for the bank and she's also worked as the head of insurance, broken in financial institutions group, where she was responsible for developing business, credit strategy and delivering business results for this segment for Citi across India. Welcome Ruchi and thank you very much for joining us today. Thank you very much. Happy to be here. Our second speaker is Tarun Biradi. He's the Founder and CEO of TBNG Capital Advisors, which is a SEBI Register Investment Advisory and wealth management firm that manages about 300 crore rupees AUM across financial markets. Tarun has more than 25 years of experience in the area of wealth management and financial planning. He's a certified financial planner registered with the Financial Planning Standards Board of India. And prior to setting up TBNG, Tarun has worked with RR Financial Consultants and ILFS in various capacities. Welcome Tarun. Thank you very much for being here with us today. Thank you. Thank you. So to begin the conversation, let me start by looking at the gold prices. So we've all seen that since the outbreak of COVID-19 in March, gold prices have shot about 35%, which is quite significant and has also risen to its all-time high levels of about 57,000 rupees. Now there is ample historical evidence in the form of data to show that when in the stock markets or in fact, whenever the economy goes through a turbulent phase, gold tends to do well. So Tarun, let me start by asking you, does this trend, does it mean that having gold in one's portfolio can provide a cushion against heightened market risks and uncertainties and how? So, Shupra, let's first understand what has changed, what has actually changed in the last three, four months. And I think post-COVID and pre-COVID, there has a lot of changes which has actually taken place. We were all talking about globalization before. We are in a phase of big globalization. Everybody's talking about atman-evarta. Every country wants to have their own. There was abundance of oil available today. There is a huge budget deficit which is happening right now. Everywhere, a lot of government intervention happening. Rise of Asia and China again is one very big point we need to understand that what has changed in the last four, five months compared to US supremacy all over. And so all these points sets the context of what has changed post-COVID. And one very important development which has taken place is a negative real interest rate. As we speak right now, what is the real interest rate for simplification? It is nothing but the treasury yields in US. If I take an example of US, 10-year treasury yields minus the CPI inflation out there is minus 0.7% as we talked today. So there is a negative real interest rate out there. And we have seen always in an environment in 2011, 2008, whenever there is a negative real interest rate, in that environment only asset class which does very well and very counter cyclical investment is gold. So I feel gold has a very important role to play in the environment where we are right now. There is a lot of uncertainty around the second wave of COVID happening. So keeping all this in mind, I feel gold need to be part of investors portfolio. How much is something we need to look at it from the overall portfolio composition or the risk profile of the client. But at least a 10% of the portfolio is something which we recommend our clients to be having in their portfolio. So what you said about how, I mean at least 10%, but from, I mean of course, but you know the flip side of this trend, the trend that I just said that where gold and market move in opposite directions, it also essentially means that the two asset classes are of comparative volatility. And I mean I'm not saying this, there's ample data to show that even during the 2011 rally when the markets went up, gold went and it just went in a tailspin. So does this mean that even in the case of gold, if it's a full-fledged investment class in one's portfolio, does it mean that you should rebalance and de-risk your portfolio over time as you might do with equity, which you might have to answer then. Yeah. So actually, I will also go back to basics like Tarun. You know, a gold historically has been considered a hedge for inflation. And as Tarun was just saying, what's happening is that we are seeing a reduction in the real, we are seeing negative realistic interest rates now. So the inflation projections in the US are almost about 2%, whereas you can see that Fed has given a guidance for a long period of time that interest rates will stay within at least the short term between 0 to quarter percent. So you're getting into an environment where you will see negative interest rates, real interest rates. And that is what gold is usually has a proven correlation with. In fact, on equities, it's not considered a perfect hedge. Historically, also, the way gold has been used is to reduce the overall, improve the sharp ratio or reduce the overall risk on the portfolio, but it's not a perfect match on equities when you look at it. But there's a lot of research that has happened in the past to see how gold has performed when equities, you know, vis-a-vis equities. And in the developed markets, actually over the last 50 years, and in fact, UBS had also published a research sometime back, that on a five-year window, adding gold actually, or at least over a eight to 10-year period of a 5% allocation gave a good hedge to the portfolio, right? So gold can act as a hedge by reducing the risk of the portfolio. But if you look at a negative correlation with equities, that is not the case. But it will have a negative correlation in terms of interest rates. There's a perfect sort of a hedge, inflation hedge there. So that's how one should view gold. One has to look at gold saying that, okay, it is a tactical kind of allocation into your portfolio. It is not something that you say over a long period of time, you will keep and just, you know, sort of accumulate because you would have seen that actually in the 1990s, or you would have probably seen that for long periods of time, gold has not moved at all. And then suddenly you will see the move up, right? So, and even in terms of volatility, as you were mentioning, in fact, it's a very volatile product. So it has very sharp drawdowns. So that's the reason that you don't want to hold it for a very long period of time, because it will not add too much to your portfolio if you hold it for a long period of time. You can look at it in two ways. If you're looking at it from a yield maximization perspective, then you have to look at it saying that I will add it into my portfolio when there is tactically for an 18 to 24 month period when I see that inflation is going up and because of that, real interest rates are coming down. That's the reason I want to hold gold, but you don't use it for maximizing the yield on the portfolio. The other reason could be to reduce the risk because I was mentioning UBS has also done a study where they've looked at the developed market portfolios, not so much in the emerging market portfolios, but they have seen that it has acted as a hedge even in those equity perspective by improving the sharp ratio. But that is more from a reduction of risk perspective, not necessarily an improvement of return perspective. When you look at return, you'll have to have a tactical view on gold. So gold, you have to use from two objectives. Either it's a risk reduction, yes, pretty good in risk reduction. If you're looking at return maximization and take a tactical view when there is, when you see negative real interest rates, because that's when it will move out. It will have a lot of volatility. It won't be a linear move up. So be prepared to handle that volatility. We've seen that in gold prices even recently. It's not been a linear move up. It went up all the way to 2050 and then now it's back at 1940 kind of levels. So you have to be prepared to deal with that volatility as well, which is why in fact, when we built portfolios for clients through Waterfield, we've done a staggered entry on gold. We've not done a one short entry and say, let's just go up to a certain level of 5% or 10% holding in your portfolio, but really take an opportunity to stagger this out and have a tactical view, not a very long term view for investing in gold. That's the view that I have. Okay. Very interesting. Even for risk mitigation purposes, one has to include gold in their portfolio. So how should we actually do that? So there's so many gold bonds, there's ETFs, there's funds and of course, physical form of jewelry, bars, coins. So what according to you is the best way to invest in gold? Asking a woman, then I can say she's the best. But frankly, from her most efficient standpoint, I think a gold ETF is the one which is the best way to enter in. In fact, there is a misnomer in the market and many clients in fact have been reaching out to me in the recent past because gold has become the flavor of the year, so to say. Obviously, nobody can miss the returns that it's given. It's given a staggering close to almost 38% return and that really draws a lot of people to looking at seeing whether it's a good place to make quick money. So a lot of people have been calling and asking for what are the different ways of investing and I will say obviously, ETF is the most efficient way. There are gold mining funds that are available, people confuse them saying that they are getting exposure to gold but gold mining fund effectively is an equity fund and actually the variables for an equity fund are very different from a gold fund because it is basically looking at mining capacity. It's a supply demand game at that point of time saying how much is the mining capacity being built up. In fact, they usually trail the gold price movements because you may be operating at a pretty high operating capacity. So from that perspective, the growth may not be as high as you go forward but gold prices per se are shooting up. So one should not confuse gold mining funds as getting an investment in the underlying asset but in my view, gold ETFs is a very efficient cost efficient way of investing. You also get access to gold at very close to the real levels and jewelry of course is a second way. One should look at some physical gold as well and to add to that and I'm sure Tarun has something to add, I can see his itching to add it. More ideas on that. So as Ruchi shared, in terms of options available for gold investing, we have primarily three options available in India. So first is either you can buy these gold ETFs. Second, so the fund of fund option through mutual fund, you can do a lot of maneuvering around that. Second option available is this gold mining funds as she rightly said and we have one fund BlackRock fund available in India and we did a very interesting study around the rolling return study of it has almost a history of 13 years and a three year rolling return with a gold ETF in India. So the downside protection on this fund is very low. So on a risk spectrum it will always be higher. So there is a four to five percent extra downside as rightly said by Ruchi that this is gold mining companies. So direct equity exposure you are taking and anything happens in the equity markets and these companies specifically will have a bearing on the returns of this fund. The third and this option is something which I really like is a sovereign gold bond option and this is one of the very interesting option I feel for investor one should look at right now. So three things which plays out for me in this product is it gives you an animal two and a half percent animal apart from the depreciation depreciation of the gold prices. It has if you hold it for maturity for eight years, it is a completely tax free product. So that is again an added advantage in this product. Again it is listed in national stock exchange so it gives you a liquidity also so tomorrow if you but yes it is subject to the market movement demand and supply so discount premium will be something one need to consider. So looking at and it's a government of India RBI product. So it again gives you added comfort that this product will be completely transparent and it's a very low cost product available. So to my mind I will give sovereign gold bond fund as the number one option compared to if one want to invest but one need to keep it in mind this is a longer horizon product if you want the tax efficiency to build in in your portfolio but for a liquidity purpose it will have the liquidity available but with a pinch of salt this discount premium you have to look in the market but looking at the two and a half percent annual coupon I find it as a very interesting product for and we are recommending to all our clients. So you know here I have a question on SDPs you know they just said that I mean if you have to look at the downside is they're not very liquid so basically what it essentially means is that you cannot sell them midway. So I mean so like if I want to look at it this way so like for instance in the current scenario somebody wanted to book profits they won't have been able to get bonds and I'm maturing around this time and if you if you wait till the end of the you know the eight year horizon when the market could be anywhere at the end of it so you're I mean your you know your profits are essentially I mean it's up to luck. So what do you have to say on that. I actually want to add there in fact it's very interesting you pointed that out because I have a little bit of a differing view than on the gold bonds because precisely for the same reason that you know liquidity and secondly for the reason that we look at it as more as a tactical yield maximization place do not want to hold it for a long time. So from that perspective if I'm trying to look at holding the gold asset in my portfolio for only an 18 to 24 month period then and of course you know the view is yield maximization here not risk reduction of the portfolio if that was the view then you know perhaps he's right absolutely then you would mention that it will be a great thing to hold it for a long time then you cannot get liquidity in the interim but you know it depends on the investment's view of the client if the investment view of the client is that I want to hold gold because I can see an appreciation I want the return of the portfolio on my portfolio when fixed income is not giving any return at all on the portfolio and gold is giving you a lot better return so there is no option and it becomes a fixed income alternative really then of course gold makes sense through an ETF which is a lot more liquid root but Tarun is correct if you're looking at reducing the risk of the portfolio then you'd want to add it as maybe a gold bond because you're holding it for a long tenure and you're saying that as I mentioned you 80% of the time in the developed market survey that was done by UBS the portfolios actually improved their sharp ratios by having at least a 5% allocation to gold right so from that perspective it makes sense to do a gold bond fund a gold bond but otherwise make sense to do an ETF so it depends on the horizon but since my view is more tactical and that's what the view is for my clients I don't do I don't subscribe to the gold bonds that's the reason for that so one more interesting part Shupra I want to share and we did this again a study for almost a 15-year rolling study with a multi-asset portfolio with a debt equity and gold portfolio and we tried comparing it with a zero let's say 100% equity portfolio also so let's say if you look at it it is all in hindsight but it is very interesting to share all these observations so last 10 years the returns of a let's say VSE sensex is around 7% 7.5% CAGR return VSE sensex delivered a portfolio with a 20% gold in the portfolio and 20% debt in the portfolio and if 60% equity in the portfolio delivered a 11.5% CAGR in the same team and from a standard deviation point of view it has reduced the standard deviation of the portfolio considerably so as rightly said by Ruchi it is very important to identify the right suitability for the client because I have seen normally people go with the flow and there is a lot of herd mentality yes gold is doing well very well for last four months let's add gold in the portfolio compared to that I think if there is a proper suitability and a risk profiling mechanism which has been built in the portfolio then investor would definitely look at asset allocation in a very different light because every year the leadership of asset classes is changing and and I completely I have a different point of view yes you need to have some part of the portfolio tactical but I think the core portfolio again can have different asset classes which reduce the volatility of the portfolio so from that point of view again gold really helps in getting you that at the same time we need to understand gold is not an income earning asset so you don't get a dividend you don't get an interest or so like when you buy an equity you are actually buying a company that company is economically adding some value and there is a dividend interest and all those start generating there unlike that gold is a inflation linked asset so you will always get returns aligned with inflation over a long period of time but nevertheless this reduces the volatility in your portfolio so you can't put all the money in equity so from that point of view a multi asset portfolio makes much more sense so investor can get their suitability test done and accordingly can decide on that yeah so you know what you just said that I mean you know you have new people as financial advisors you know you look at gold as something that will help to mitigate the you know portfolio you know volatility so you know in that sense but still if you want to have golden portfolio then I want to come back to this question of how much because if an investor is looking at gold as an investment class as opposed to you know what you just mentioned then can gold really help achieve financial goals and if an investor is looking at gold you know from that lens then how much should one have you know how much gold should one have ideally their portfolio yeah you want to take this I don't know you want me to take it please please Ruchi yeah so I think that as Arun was mentioning in fact over the last 30 years from 1981 to you know about 2001 there was a you know sort of a return calculated on gold and gold gave about eight and a half percent return caga return in that 30 year period right which was an inflation in India during that period was around seven percent so frankly it as he rightly said it just barely beats inflation whereas sensex over that 30 year period of time gave about a 14 and a half percent return right so one when clients are looking at creating portfolio they are obviously trying to generate return right so over a long period of time when you're trying to put gold to reduce risk then you have to look at it as a fixed income alternative saying that you know it's barely beating inflation so that is more like a debt return product so if you're building portfolio to mitigate risk then you should have an allocation of about five percent odd in in gold tactically you can increase that over a to you know to get returns higher returns right so at this point of time for example our client portfolios are positioned at a 10 percent allocation to gold because we believe that it can be a return generator which will generate returns in excess of what the fixed income markets will deliver and that's the reason tactically we've moved it up to 10 percent but I would not advise if there is a if you're building portfolios for a very long period of time then a five percent of gold does the same if kind of work as a 10 percent does the only thing is that it will mitigate risk five percent if you add a five percent but it will also reduce the return so that's why I would not keep it at a 10 percent level I would just keep it at a five percent level if I'm trying to build it as a risk mitigation for a long period of time and I'll hand it over to Taran for his comments what would you like to add here Taran? So Shupra I think we also because we whenever we do a financial planning engagement with a client normally we always tell them gold and silver always should be a part of the portfolio more from a social requirement point of view we always try to set that expectation it's not a wealth creation asset as rightly said by which you also so it's not a wealth creation asset but at the same time the benefit of a multi asset portfolio cannot be ignored you can't have all the money in equity and so based on your risk tolerance capability you need to decide how much money you can keep in high risk asset medium risk asset and a low low risk asset so from that point of view we would put this asset in a medium risk asset so one need to get this risk profiling done for that and accordingly can be decided but at the same time I think the environment where we are in tactically demands a higher allocation of gold in the portfolio we have never been a big artery of gold allocation in the portfolio but things have changed dramatically in the last four or five months and that has made us to actually start recommending at least a 10 percent of the portfolio into gold will actually help you over the next two years because there is a lot of uncertainty which is building in at the same time we are in because if you look at the balance sheets of all the global federal so US federal before covid it was six trillion dollar balance sheet four trillion dollar balance sheet as we talk it's a six trillion dollar balance sheet right so there is a huge expansion there is a huge flooding of dollars across the globe and dollars has an inverse correlation with the gold we are expecting the environment not to be very positive for the dollar in the same current environment and due to that gold again makes a lot of sense to be part of the portfolio yes all right so now that we're talking about you know the types of gold investments one can do I also want to touch on digital gold I mean it's a new form of you know a gold investment has come up in the past two three years so I mean I think it's actually I don't know I would like to hear if you know what do you think about digital gold I mean even companies like Motila and Osvala have come up with their you know own products around digital gold so you know what is your view on digital gold you know as a way of investing in gold then we'll start with you yeah so I would say digital gold I think the way to buy a gold as we discussed there are three four options available so from a convenience point of view yes digital gold gives you a buy and sell transactional capability much faster than any other option but I don't see that as a like gold ETF also you can buy digitally so from that point of view I don't see any reason why it is anyhow different there are a lot of companies available I know patiums of the world have all started selling gold yes they start giving you a location into the gold prices today and future but again my bet continue to would be a sovereign gold bond fund if you are looking at a gold right now go for a SGV I recommend that yeah so I mean essentially you know it's digital gold is neither a financial product nor a deposit I mean I think it's just great I mean so it's an easy way to have access to gold around the clock I think that's what it is right what would you like to add here no I would like to say exactly what Arun is saying it's very easy to transact an ETFs as well so I don't see the added convenience of you know the digital gold and and I think just in terms of volumes the price discovery on ETF will definitely be good so I mean I don't want even worried about the price discovery on ETFs so for all of those reasons I would rather recommend doing an ETF versus you know digital gold okay I want to take a take a question here from from our viewer so Tarjan Chabadia says that Russia, China and European nations are investing in gold so if the dollar price expected to tumble after November who would like to answer this no no so I think there are a few things that are going a couple of things that I don't touched upon what is happening obviously is that the Fed you know sort of balance sheet has really gone to actually a 7 trillion dollar size and in fact there are numbers floating around that it's going to go all the way up to 10 trillion dollars right so this is really negative from a dollar perspective right that when there is so much of money that dollars that are available obviously when the supply is higher you will see the dollar index coming off and that's one of the biggest elephant in the room that you know how much will dollar depreciate over a period of time and and as Taran rightly mentioned that gold has many sort of you know I mean it is such a well studied product over the last so many years there have been correlation analysis that have been done across various types of asset categories right so equity as I mentioned it's not a perfect match for real interest rates for that it is quite a perfect match because negatively correlated even from a dollar perspective it has a negative correlation so when dollar weekends actually gold strengthens and that's the expectation when dollar will weaken gold will appreciate in fact today if you look at a lot of the research firms around they started out with an outlook saying that you know gold will go between 2000 to 2200 levels in fact the street consensus the market consensus is 2200 just recently I think two weeks ago goldman raised it to 2300 dollars right there are of course there are outrageous sort of like Chris Woods has come out with some level of 5500 which is completely outrageous but there are a lot most of them are thinking that gold will go up for the reasons that we've mentioned that interest rates are at a low and there are not many too many alternatives to invest dollar is going to depreciate because there's just too much of dollars lashing around there is no way for it to strengthen from here onwards right so all of those things will lead to actually increase in the gold price the only thing is it'll go up and go down and go up and go down so it's not going to be a it's not it's going to be a roller coaster right to reach that level that's what it is and you hope to get the bottom and not the high you know not the high but you know nobody knows how that is so um so I don't know I mean his question was on Russia and what was the specific question I know dollar is weakening is definitely one that I wanted to make but yes yes so Russia China and many European nations are investing in gold so if the dollar price expected to tumble up so that's good right if they're investing in gold that's also probably picking up see what's happening is gold also there are two or three main uh drivers of demand of gold right 50 percent of the gold actually is used for consumption and that's India and China that contribute to that consumption demand for gold almost about 30 percent of his investment demand and a lot of central banks buy it as reserve currency as well right so them buying as reserve currency is actually to protect itself from the dollar depreciating because when you so there are two things you can actually hold a dollar as a reserve currency for the bank or you could hold a gold reserves and at times you may if you see that the way forward for dollar is going to be a depreciation then you'd rather hold gold in reserves and that's what is also happening but that's also a reason for worry many you know if the central banks come out and start selling gold then actually gold will start tumbling and that's one of the big worries that is there as well and that's the reason you see volatility because there can be big moves in gold but and consumption demand is very soft India and China are not necessarily consuming right now because and that's a direct reason it's a covid impact and of course India has come out and said that you know they're looking at revising the excise duty also maybe downwards to promote this but consumption has to pick up consumption has not picked up and investment at the same time is being driven largely by the central banks right now and investors you know the gold ETFs here to date have seen 90 billion dollars of inflows that's a very large inflow in ETFs so all the investors are driving the price of gold and so are the central banks this time and not so much consumption demand for this you know which is essentially the next question also I mean you've kind of answered it but I'll still take it out and you can answer it this time gold prices have already come down from the 57,000 peak to 52,000 so till what duration do you see gold price might increase in the future especially with the festive season around what could be the possible value of it? Yeah so I think Shipra I think astrologers can I think I will not be able to talk about even I don't know it is 52 today but I think on a ballpark basis couple of points which Ruchi mentioned I want to add so if you look at last 10 year growth of gold production is just just 1% so the production is actually there is no supply happening of gold so there is a limited supply available for gold and if you look at all gold mining companies reserves also they are reducing as we speak today at the same time the central governments demand for gold and there is one very interesting statistics I want to share so at the peak level it used to be the Fed used to have 25% of its reserves available in gold as we speak that reserve has come down to 6% today so that again makes a very strong case that central banks instead of selling will have to buy more so buying more gold is something which will be as an option will be used by central banks in future so again that again makes a very strong case that the gold prices will continue to remain high only in the environment we are all right okay so we'll take one more question from our viewers this can be the last question so this young man wants to know so for the long-term investment perspective which is a better gold investment tool between SGV and ETF considering that SGV has various investment criteria and lock in period so Ruchi I'll take I'll take this question yeah so from a long-term point of view definitely I will rate SGV as a better asset class due to the taxation benefit available and will coupon available of 2.5% additional apart from price appreciation depreciation so SGV is definitely my choice for that okay because he's added that you know various investment criteria and lock in period that comes in with SGV so I mean various investment criteria I think only individuals can invest corporates cannot invest get money and so I think what he's trying to say is that because of the restrictions does it make sense so wherever you can't I guess if you can't get access to it as an and you can only do it in an individual name and if you want to do it to LLP or company route then you would have to do an ETF versus SGV all right okay so I mean time is pretty much up so I'm going to find out the conversation here thank you very much again for joining us today and when we had a really you know interesting conversation around gold investments and thank you very much to all our attendees for thinking of the time to hear us and have a good day everyone thank you thank you very much