19% annual returns in 10 years on buying gold on Akshaya Tritiya; should you invest in gold this year too? (2024)

Gold price, which was trading at Rs 71,502 for 10 grams of gold with 999 purity on May 09, has witnessed a remarkable rise in the last one year; it has grown by around 18% from Rs 60,616 on previous Akshaya Tritiya (which was on April 22, 2023), according to the India Bullion and Jewellers Association. If we take a 5-year period, then gold has risen 2.25 times since the Akshay Tritiya day of May 7, 2019, when the price was Rs 31,729.

This year, Akshaya Tritiya falls on May 10.

However, gold price recently fell to Rs 71,321 on 03 May, after reaching a peak of Rs 73,596 on 19 April . It has raised concerns among investors whether the price would fall further. So, is this Akshaya Tritiya the right time to invest in gold?

Attractive returns on gold buying on Akshaya Tritiya in last 15 years

The price of the yellow metal has grown not just in the short-term rally of the past 5 years, but even over periods of 10 years and 15 years. It has risen around 2.48 times and 4.86 times, respectively, from the levels of Rs 14,710 in 2014 and Rs 6,100 in 2004.

Historical 10g gold (999) price on Akshaya Tritiya day

Source: IBJA

The returns on gold are linked to your holding period. In the last 20 years, the chances of your investment earning more than 10% return have been higher if the holding period has been 15 years. Even for a holding period of 10 years, the returns have mostly been in double digits since 2014.

Historical returns on gold when invested on Akshaya Tritiya day

Source: IBJA

Is there something peculiar about Akshaya Tritiya?

Investing in gold on this special day brings a unique combination of good investment and discipline. “Akshaya Tritiya is regarded as an auspicious occasion in India to buy gold. This cultural belief results in high demand for gold around this time. The returns on gold bought on Akshaya Tritiya have indeed been attractive, being the start of the gold buying season in India, which historically is an important spot in price cyclicality,” says Vikram Dhawan, Head-Commodities and Fund Manager, Nippon India Mutual Fund. “However, it's crucial to understand that several global factors also significantly influence these returns.”

For a regular investor, buying gold around Akshaya Tritiya also helps in staggered investment and cost averaging. “Buying gold on special occasions ensures a discipline about saving and investment which almost always holds good in the long-term. While we do not see much calendar effect on gold prices, there is some impact of it on the volume of purchase; and typically the sellers provide discounts or incentives to stabilise prices, ensuring that business looks good on volume terms during such period,” says Dipankar Mitra, Director-Research, ASK Private Wealth. “Such event-based buying is to be distinguished from the portfolio allocators’ tactical or strategic portfolio decisions but they all contribute to making gold demand stable over a long period.”

Has the gold price rise momentum faded?

After reaching its peak of Rs 73,596 level on April 19, gold price has fallen to Rs 71,502 on May 9. Should investors be worried after the recent correction in gold price?

“After reaching record highs, it is common for asset prices, including gold, to enter a correction or consolidation phase. This downturn doesn't necessarily mean the price rise momentum has entirely faded; it could be a sign of the market adjusting to a new normal or price range. However, with two important elections unfolding (India & US) this year, there is likely to be a demand for safe havens and hedges, including gold in the medium term,” says Dhawan.

The important demand drivers of gold are still working. “Short-term price movements are difficult to explain for any asset class. In the near term, Chinese demand, expectation from the US Fed policy, buying by central banks and positions in futures markets are all variables impacting gold prices. However, traditional sources of demand for gold — including from technology manufacturers; buying from emerging market consumers, notably India and China; investment demand in the form of bars, coins and ETFs; as also demand from central banks — are all in place. These factors call for a strategic and systematic allocation to gold instead of a momentum-driven opportunistic trade,” says Mitra.

Role of depreciation of Indian rupee in gold prices

The major difference between international gold price movement and Indian gold price movement is the depreciation of the Indian rupee against the dollar. “Currency depreciation can significantly influence gold prices. For instance, gold prices in Japanese yen terms have risen by almost 19%, compared to 12% in INR terms this year. Historically, the rupee has depreciated by 3-4% annually on a longer-term basis,” says Dhawan.

Though it is difficult to predict the depreciation impact on gold prices in the short term, on a long-term basis, the impact is relatively stable. “Basis the historical records, Indian investors may expect around 3% additional yield over the dollar return of the gold on an annual basis on account of depreciation. However, based on the balance of payments situation, large changes in currency values usually take place in a lumpy fashion instead of following a linear path. Only over a long period average, depreciation would correspond to the 3% rate,” says Mitra.

Other factors are likely to have influence on gold in the next one year

The higher the demand for gold, the higher the prices would grow.“Gold prices are influenced by diverse macro and micro factors of varying intensity. Currently, the main drivers of gold prices are central bank buying and demand from China. Demand in China is up by 6% this year, despite high prices, as Chinese investors diversify away from struggling equity and real estate markets. Additionally, elevated volatility in Indian equities due to upcoming major events may lead to stronger flows into Gold ETFs,” says Dhawan.

Inflation and interest rate dynamics will also influence the prices. “In the near term, very strong inverse correlation is observed between gold and US bond yields. As long as the broad expectation of eventual decline in inflation rate and corresponding decline in interest rate holds good, it would add a tailwind to gold price. Geopolitical turmoil provides a further fillip to gold widely seen as a safe haven,” says Mitra.

How much of the portfolio should one give to gold

Gold has worked as an excellent hedging product against inflation and economic uncertainties and offered a good diversification avenue. However, experts advise not to go overboard. “We would suggest 15% allocation to gold for a balanced risk profile with a long-term investment horizon. This is based on the historical return of gold that has typically provided a return which is closer to equity, with somewhat lower volatility. Thus, investors are likely to be more than compensated by reallocating a part of their fixed income allocation into gold, assuming constant equity holding, i.e., unchanged risk profile,” says Mitra.

However, there is also a word of caution when it comes to blindly following the herd.

Krishan Mishra, CEO, FPSB India, says, “Buying gold at the time of auspicious events will always cost you more. It’s like buying an air conditioner in peak summers. One needs to be careful while investing their hard-earned money and take a calculated risk by studying the market and taking the right advice from a qualified professional. It is important to track down the essence of timing for investment in markets. Any investment entry should be done when the market is low and you can look at more gains when it peaks. In the game of risk and return, the philosophy of 'high risk, high gain' doesn’t work.”