Money-making opportunities in gold

The weak rupee and discounts on domestic gold ETFs make this a good time to diversify



Gold prices have been weak for many weeks now. But if you are an Indian investor, there are still a couple of money-making opportunities in bullion.

One, gold ETFs in India are now trading at a discount to their NAVs, on the stock exchanges. Market prices have dropped as there is not much demand for paper gold from investors.

Gold BeES (Goldman Sach’s gold ETF), the largest gold fund in India, trades at a price of ₹2,448/unit. This is at a discount of 2 per cent to the NAV of ₹2,492.63.

Similarly, UTI’s Gold ETF trades at a 2.8 per cent discount to NAV. Gold prices in India swung into discount to global prices in May following a drop in demand, and are still at a $3-4/ounce discount.

Therefore, if you buy gold ETF units on a stock exchange platform, you may get to pocket some extra returns if the above discounts close over time.

Though gold prices may be weak in the short to medium term, gold ETFs can help you diversify portfolio risk.

You never know how long the equity markets may remain in correction mode.

Two, given that the rupee’s short term outlook is weak, there are opportunities to make money from the currency play too.

Internationally, gold is traded in dollar terms.

But as gold prices in India are rupee-denominated, any depreciation in the rupee against the dollar adds to gold price returns.

Positions in MCX Gold futures can help you make the most of this. The contract moved up over 1 per cent last week helped by a weak rupee and closed at ₹26,894.

It can well go to ₹27,500 this week after briefly stopping at ₹27,000.

But don’t try this with MCX Silver futures. This contract looks very bearish on the daily charts. Last week, the contract closed down by 1 per cent. This week too, the selling may continue.

In the global markets, gold continues to be under pressure. Though a softer dollar and a halt in talks between Greece and its creditors helped it gain some lost sheen last week, it finally closed at $1,181.6/ounce, up just 0.8 per cent.

The Fed factor

What stopped gold from a significant upmove was the strong US economic data. US Commerce Department data showed a surge in retail sales in May.

The four-week average for initial jobless claims also remained extremely low. And data on Friday showed that US producer prices recorded the biggest increase in more than two-and-a-half years.

Thus, gold investors continued to press the ‘sell’ button.

SPDR Gold Trust, the largest gold-backed ETF in the world, saw holdings drop by over four tonnes to 703.98 tonnes, its lowest holding since the 2008 Lehman crisis.

Demand for the yellow metal in the physical market in Asia was weak, with prices quoting at a discount in India and marginal premiums at Dubai and Hong Kong.

The US dollar index closed at 94.97, down from 96.31 in the previous week.

Silver and platinum, however, didn’t post much gains. Silver ended at $15.97/ounce, down 0.8 per cent.

Platinum closed at $1095.08/ounce, lower by 0.1 per cent.

Cues to watch

Lower Asian demand and outflow from global gold ETFs are weighing on gold. Traders need to be cautious.

This week, officials will again mull the Greek debt deal. Several key economic releases are also expected in the US.

Monday will see the release of industrial production data followed by housing starts on Tuesday.

On Wednesday is the FOMC meeting when the central back may comment on rates. Economists expect that even if there is no timeline given, there will be some cues on the direction of rates from the Fed. Consumer price data and weekly jobless claims will be released on Thursday.

On the charts

Gold prices have been quite volatile. After hitting a low of $1,169.29, they bounced back and hit $1,192/ounce within two trading sessions.

However, prices have struggled to stay above $1,190 and closed at $1,181.

So, be cautious and trade with a stop-loss.

This week, gold may move down to test $1,169/1,163 again. On the upside, the first target will be $1,188 and then $1,192.

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