 Hello everyone and a very good afternoon. We are back with another episode of Entrepreneur India's Smart Investing series, your weekly dose of personal finance. I am Shupra Singh, Chief Correspondent at Entrepreneur India and your moderator for today's panel. So as we enter the festive week, it's only appropriate that we pick a topic around that. So today, just one day before the festival of Dhantheras, we want to discuss whether this year is a good time to buy gold as we're still in the middle of a pandemic and we're still going through the economic slowdown caused by the pandemic. So let me start by introducing our speakers. So we have with us today, one second. Okay, so we have with us today Dhaval Kappadia. He's the director portfolio specialist at Morningstar Investment Advisor. He leads investment counseling business at Morningstar India. He's also a CFA and CFP. Dhaval has about 20 years of experience in areas including fixed income, equity markets and investment advisory. Prior to joining Morningstar in 2011, he worked at Axis Bank leading a team of investment advisors and he was responsible for setting up the investment and portfolio advisory platform at Axis Bank. Welcome Dhawan. Thank you very much for joining us today. So our second speaker is Navneet Dhawan. He's the vice president commodities research at Mutilal Oswal financial services. He's managing commodities and currency research at Mutilal and in the past he has worked with Anand Rathi commodities for five years tracking ferris and non ferris metals and two years with central wealth management tracking metal sector and metal companies. Thank you very much for being here with us Navneet. Okay, so you know, so then there is actually a day you know when people rush to buy physical gold and not so much for investment purpose but for you know prosperity and because it is considered to be auspicious but in today's discussion I want to primarily focus on gold as an investment. So I want to start by you know looking at some data from the past so I just called some data and from what I could see so basically I you know what has been the gold prize on Dantes in the last 12 years. So you know so from what I could see that you know since 2008 gold has yielded an average annualized return of a little over 7%. So from that perspective you know why don't you tell me let's start with you Dhawan. So you know what are the prospects of gold as an investment in the you know long term from that perspective. So you know as far as you know my understanding goes typically gold has been viewed from two or three points of view. One is it has been viewed as a way to beat inflation or hedge against inflation. The second way in which it has been viewed is obviously that it is a store of value or it does well during periods of significant market volatility you know like we've seen this year as well when gold has done well you know particularly in the early part of the year when we saw significant market correction not only here but worldwide as well. So typically people view gold from you know largely these two kinds of perspectives you know either as beating inflation or you know doing well during periods of market volatility or significant market uncertainty. Now if you look at it from an inflation perspective and you know I was looking at history over the last about you know since maybe about the 1960s 1970s or so. Gold you know during the 1970s and you know oil prices have moved up a lot globally and you know inflation was pretty high at that point of time you know in US as well inflation was running almost in double digits. Many other countries inflation was fairly high and at that point gold did fairly well so it did sort of play the role of sort of beating inflation and you know acting as a store of value during that period but then in subsequent periods such as you know the 1980s or particularly late 1980s, 1980s, 1991 and so on so forth we've seen when inflation actually came down a bit and was relatively new to it. Gold prices which gold didn't do as well as such in fact you know it underperformed the expertise and it generated negative returns as well. So my point is that yes it has beaten inflation on occasions but one can't conclusively you know make a statement that at least we can't saying that you know gold will beat inflation consistently over a period of time. So from that point of view that is not a very sort of strong argument at least from our perspective. The second reason is that yes it has whether it's played a role of acting as an insurance policy to the portfolio to an investment portfolio. In other words you know when markets see significant volatility like we saw this year or 2008 and so on so forth how is gold performed. So generally gold has done well during those kind of periods as such even like I said even this year we've seen you know after a long period of lull in gold prices from you know 2013 to about 2019, gold prices actually corrected by about 35% and they've now only reached the peak levels that we saw in 2013. They've only reached those levels only this year. So but it tends to prove we're dealing either to a market volatility. So from that point of view it does play a role or it can potentially play a role as an edge against market volatility or like I said you know that's probably an insurance policy against market volatility or whatever. What would people like to see? Yeah yeah what would you like to add here Navani? Let's get your view on this. I largely agree with what Dhaval is saying and typically gold as a measure of value gives you protection against inflation against uncertainty but over the last 10-15 years we've seen it acting like an investment tool largely and people have been flocking on to gold kind to generate kind of returns as compared to just a store of value or probably a diversified to a portfolio. So at the later stage we'll discuss what kind of proportion should one have in their portfolio but I think it's a it's a measure of investment where you have now various avenues to invest into gold. Definitely it doesn't be its inflation at times but at times it generally kind of beats inflation and gives you and some returns. So gold by nature has a very typical tendency to move for two three years and then go into a slumber for four five years. So that four five years it kind of eats into your return which you've garnered over the three four years. So my sense is that if somebody's got a long term perspective then it's advisable from a 10-15 years perspective to be strongly bullish on gold but from a short term perspective you've got to get the timing very right when to enter and when to exit the market typically you are investing into physical gold or any other asset medium that you choose to but the timing has to be very right if you want to generate additional alpha to your portfolio. Okay so let us also now talk a little about prices because you know in the past 18 months or so I mean just to talk about the recent prices it has been steadily rising so I mean maybe Namneet you can take it up you know what are the factors that have kind of pointed these gold prices in the last 18 months and you know going forward how much more is it expected to go on from here because you know with the new with election results and everything there might be a fiscal you know stimulus in the pipeline from the US government. So what are your views on that? Well uncertainty is a friend of gold and the more the uncertainty around the globe the more it is better for gold prices. So the last couple of years as you rightly pointed the market has been pretty uncertain global economies have been very uncertain it all started I believe with the US and China trade war some kind of sanctions against each other then US in having sanctions on Iran then the oil price rally oil price collapse then inflation rising up very sharply central banks over the last 18 months or probably 24 months have bought down their interest rate very significantly. If you see US interest rates are very close to zero and in many of the parts of the world you have a negative interest rate trajectory also in talking about our nation we had interest rate roughly around 9% currently we stand roughly around four and a half percent so it's almost half of what we were about two and a half years back so these kinds of cuts have been beneficial and people are no more interested in parking money into fixed securities or bank FDs and are looking to aspirational buys or any other tool that can give you better returns. Equities has its own set of problems as to how valuations are placed and what is overstretched was in not stressed but gold it is not very easy to derive the fair value for gold and you don't have a P multiple or you don't have a DPS which can give you a rough estimate as to what's the fair value of gold at this point in time so you've got to go by what the momentum the market is what the economic backdrop and scenario is and look to invest into gold whenever you feel comfortable maybe in tranches maybe in lump sum but investment should be definitely what you should be considering you. So when you say you know investment should definitely be considered so if I have to only talk about gold ornaments I mean I don't know see you know your your experts you must know better you you know interact with clients I don't know how much do people actually buy ornaments with the you know with investment proposition in mind I think it's just something that they can maybe use for you know marriages the kids marriages or functions or whatever. So in that sense gold ornaments as an investment tool how you know how appropriate how lucrative that is. If this question is for me ornaments I do not count it as an investment tool it's definitely you parking some money into gold you can flaunt it you can wear it you can use it you can keep in your bank like that is all different but as soon as you buy a gold ornament you lose roughly 7 to 10 percent in the making charges as compared to if you buy a raw form of gold or if you bring a coin of gold so ornament definitely is not a very lucrative bet as far as investments are concerned but it's it's a fair bit of investment which is going into gold you do know generally typically Indian mentality is not like you kind of liquidate your ornaments yes if you want if you want any kind of liquidity you could look to liquidate your gold bars or coins but not ornaments that's the last resort that you could look at too. So ornaments are typically something that keeps comes to your place goes into your lockers or goes into your actual consumption but it's not a fair value of investment that I will call that one could be looking at to liquidate at some point in time. Would you have to say here Dhaval? I mean just purely looking at investment options within gold yeah maybe you wouldn't I would probably agree with Nagni that you wouldn't look at ornaments purely as investments I mean if you're actually looking at investing into gold from an investment standpoint you know as like I said as maybe as an insurance to your policy or your portfolio and things like that or to diversify your portfolio then it can be through other modes such as you know whether it's gold ETFs or you know hovering gold bonds or gold mining stocks is another option although they're slightly different they may react slightly differently to gold price movements but then you know and then there are these you know derivatives which are essentially meant for people who want to trade in gold as such but then I would think even from a long-term investment point of view obviously there is a cost to holding you know ornaments right I mean maybe the easiest people don't keep so much of the stuff at their home right we will tend to keep it in the bank in a locker and so on so forth there is a cost to holding physical gold on top of it there is no underlying cash flow return or unlike a fixed deposit or a bond or equity where you get dividends from bonds or you get you know coupon in case of gold there is no such applying return that you get so therefore it's not really meaningful to hold or it's I would say there is a fair bit of cost to holding physical gold particularly if it's in the form of ornaments. So you know since you deal with clients the world directly in PMS services so I want to understand you know over the years have you seen any trend in you know clients moving from physical gold to electronic gold because from what I can tell from data that I mean inflows in gold ETFs have been steadily rising so what has been the trend like? You know to be honest I think you know if you looked at the period from about you know 2012-13 to about 2017-18 I mean it flows into gold ETFs really did not increase in fact they were coming down I mean people were actually in fact you know pulling out money from gold funds or gold ETFs it's only in recent times like you said you know when gold prices have started to do well suddenly people think you know it's worthwhile to get into gold I think that's a typical sort of at times unfortunately the investor mindset they tend to enter asset class which is done well so in in short I don't think there is any significant trend so to say that people where one can say that all right you know people have stopped buying physical gold and started buying you know ETFs I don't think there is unfortunately you know although the media talks about it we talk about it from time to time but unfortunately I don't think that trend has really come in where people have switched over from buying physical gold to buying ETFs but rather I would think probably just to close out that point I would think that instead of buying gold I think the younger generation is now moving to other asset classes so I think that's the change maybe you know our parents or our you know elders were essentially buying a fair bit of physical gold in terms of ornaments and so on but I think that trend probably appears to be so reducing in that sense how has the trend been in the last you know eight months now that we were you know in the middle of a pandemic and the markets were like completely you know on a tailspin how is the trend now because gold is always seen as a as a hedge against a downturn but I think that's the point you know I don't know if people have really there are obviously into ETFs and into gold funds you know flows have improved over the last you know six to twelve months or so but I think it's more because of people are looking at the past performance the last you know one one and a half years of performance and putting money there rather than looking of it actually as as a portfolio diversifier or the way we are talking about it I don't think people are looking at it that way I think people are just sort of probably most investors appear to be attracted more so by you know the returns like I said over the last 12 to 18 months rather than you know the other things that we were talking about. Okay so Namin let me come to you so okay so you know I think so far in the discussion we've all agreed that okay gold does over the long term it can help beat you know inflation so if somebody has to invest in gold what are the options that he can look at so we've I mean you know what are the options apart from physical gold to consider if one has to invest in gold. As you rightly pointed physical gold is one of the larger market where consumption is at the moment and if you see in the last nine months data first couple of quarters there was a slack in the physical coins and bar sales but in the last third quarter it's picked up really very well and it surpassed levels what what it was in 2019 as well jewelry sales have taken a hit because of marriage slowdowns or probably marriage is happening at a lower scale as to what they were previously happening and kind of the run up in prices so people are a little conservative as to how jewelry sales have reacted but coins and bar sales have reacted very sharply. ETFs have seen a decent amount of volume pickup and I would say its significant amount of volume pickup on the exchanges the ETFs were not as liquid as they are they are at this point as double rightly mentioned there has been a massive pullout from ETFs from 2011 12 to 2019 but 2020 has changed the story for the ETF market and you name it and these ETFs have huge amount of volumes happening on the daily basis as well as sustained open interest in these ETFs are indicating that people are now looking towards this method of electronic gold as well. Another format of gold that we are seeing is digital gold which is coming to the offering where PTM has got some offering or PhonePay has got offering. Motilla Lozwal has got a product called Mi Gold where we have a back-end tie up with MMTC PAMP. Well most of these guys have back-end tie up with MMTC PAMP and offering your digital gold which is five years free of cost storage for you and you can buy 24 hours a day 365 days a year and liquidate it immediately. So if these kinds of facilities are available why would one go to buy a physical gold and have pay locker storage charges and something like that. One of the caveat that I feel that people are looking at is the rise in GST and the additional charges that they are incurring and gold at this point is nine. So that's not what digital gold or what the ETF gold has is offering you. So I think a lot of interest is coming towards these aspects and short-term traders who have a very short horizon are trading on the domestic exchange rated platforms also like the NCX or NSC. But those are typical trading clients who do not have a two years five years time frame horizon. So people who are banking on say probably two three years time frame are looking at ETFs, digital gold and physical gold at this point in time. Somebody's got eight years perspective should be looking at sovereign gold also. Sovereign gold bonds also are very lucrative asset gives you about two and a half percent interest rate taxable but the returns after eight years are tax free. So my sense is that somebody who's with a longer time frame can look to buy or invest into sovereign gold bonds also as I believe that from a long term perspective that's also one of the good investment bet for gold. So I have two questions here. I'll take them one by one. So one is listener one she's asking. I do not have a DMAT account. So I cannot invest in an ETF. So what options do I have? Well, if you want to invest in digital gold, you need not have a DMAT account. Digital gold as I told you with Mutila Loswal or probably ATM is offering you they create a digital wallet for you just like a DMAT account. A DMAT account has got shares inside it. Digital wallet has got gold inside it. So number of units like your mutual fund units can be visible in that digital wallet. So you need not have a DMAT account if you want to buy a digital format of gold. If you want to buy an ETF specifically then you need to definitely have a DMAT account. So even if you don't have a DMAT account, you can invest yes through gold savings funds. So there are mutual fund companies have mutual funds schemes that invest into ETFs. So obviously to buy a mutual fund you don't necessarily need a DMAT account. So you could buy the gold savings funds that mutual fund companies are offering and in turn they would primarily invest into their own gold ETF. So that's another option. Okay, another question that I'm getting is in terms from a liquidity perspective, which is better between a funds of fund and an ETF? Yeah, I don't think that fund at any point of time is a short liquidity. Like again we were discussing earlier that maybe over the last about six to ten months interest in investing in gold ETFs is going to be, therefore trading volumes are increased. But then if you look at periods prior to that, I mean volumes were very great. So from that point of view, to invest to a fund of fund at least, you are short in a way of liquidity because the fund house may vary between whenever you ask for a retention asset. So from that point of view, I would think already from a liquidity perspective, fund of fund over a longer period of time over a sustained period of time or across different market cycles, I mean fund of fund would offer better. Okay, so coming back to our discussion, so so far from what we have discussed I think we can simply say that gold is an investment class in itself, cannot necessarily help fulfill financial goals. I mean, of course it can be part of portfolio. So in that sense, how much of one's portfolio should be exposed to gold? I mean what is the optimum percentage to have in your portfolio? See when gold was kind of in a slumber mode in 5% allocation, a decent amount of allocation. But when the momentum started over the last couple of years, we've revised it upward and we've advised our clients to have at least 7.5 to 10% of their portfolio into gold prices. As we believe that it's likely to give you better returns than the other asset classes that are in competition like equities or real estate or debt funds. So from a two years perspective, we are strongly bullish on gold and that's the reason we are advising them who have allocation of roughly around 7.5 to 10% as per their comfort. And for a DIY investor, I'm sorry but I mean since I mean of course you're advising our clients but for a DIY small investor who has to kind of take care of his portfolio investments himself and he might not be able to take tactical calls in every two years. So what about such an investor? So if you ask me, I would think that you know gold prices have sort of moved up a fair bit. I mean that's what our view is that we've seen from Ravi already in gold prices and at least the way we are seeing it is that you know they seem to be above their fair valuation. From that point of view, I would rather think that you know getting into an asset class that has done so well over the last 12-18 months in a big way is not the greatest idea at least the way we are seeing it. So from that point of view, I would think that maybe 3-5% allocation at best can be so far off in gold but I think it's at least the way we are seeing it is that it's an expensive insurance policy at the moment. So I would actually recommend a slightly lower allocation. What would you like to say Anamit, you know for small DIY investors? As I mentioned that our view is strongly bullish for the next 18 months and the narrative has changed largely. It was kind of a slower growth, slower economy, lower interest rate, higher inflation scenario but over the next few quarters we will witness that liquidity will be the primary driver and higher inflation will be one of the larger drivers and we strongly believe that central banks have run out of ammunition at this point in time. They have tried to do their best in the last 2-3 quarters to make sure that the absorbs or shock ups from the pandemic is taken care of. So they have now run out of ammunition so not much is expected from them. So liquidity is going to drive up asset classes and gold is a very small market as compared to what the size of the market looks like to be. So I believe that even a small proportion of money which is into negative yields at this point in time moves towards gold. Prices are likely to rally about 20-25% from here and we have our targets at $2,000, $4,000, $5,000, $5,000 on the domestic front. Hence we continue to maintain a strongly positive view along with a higher allocation of 7-10%. All right okay so we're running out of time so I want to quickly take one last question from our viewers. So Debargay is asking, US markets have been rallying on the back of election results and Pivitsar vaccine news. Gold tends to move opposite to stock markets so should we expect to fall in prices any soon? I think obviously the US markets have rallied for like you said for a couple of reasons. One is the uncertainty around elections going away and probably people are expecting that there is some further development on the vaccine front. So that's the exact point you know once the uncertainty tends to reduce, gold prices tend to also come off because it is like we said in our heads again uncertainty or significant kind of market volatility so I mean very difficult to say where they can move in the short term but at least I think if we are thinking that a fair bit of the rally seems to be behind us and in case in terms of obviously very difficult to derive a fair value for gold like we're trying to do it for equity, we're trying to do it for bonds or even real estate but for gold because there is no underlying capture you know it's just that you're you're buying gold in the hope that there is somebody else who's going to see more value in the gold that you're buying. So in short I think that you know probably as the uncertainty tends to reduce you know probably gold prices can come off or the attraction can probably come off. What would you add to add here on this as you know concluding remarks here? I believe that there are various avenues at this point where you could be looking to invest into gold and market is opened up significantly. It's not just a means of to beat inflation or a hedge against your portfolio or just insurance policy now it's behaving like a typical asset class. In this year there is a lot of saving for investors as they have not been able to go to foreign travels, aspirational purchase have been taken ahead. So a lot of money is coming into gold at this point in time along with that the returns is also very lucrative and attractive that is what is making a run behind this asset class and I believe that until prices start to reverse very sharply there is money supply going to come into gold and investors are going to be loathe what this asset. So my sense is we continue to expect a positive view along with strong investment flows. Alright okay so that brings us to the end of our session. Thank you very much Dhawalla Navneet again for being here. Thank you to our viewers for joining us today for this. I hope that you had some you know interesting key takeaways from our discussion today. Well wish you all a very happy Diwali, stay safe and well have fun.