On an average gold has given 22% returns every year in last six years. Investment in gold has attracted the attention of retail investors in last few years. With various options such as MCX, gold mini, petal or gold exchange-traded funds (ETFs), investors have been offered products suitable to their needs. Chetan Bharkhada, president - head commodities and currency – Anand Rathi, explains nuances of investing in gold to FE’s Sandip Das through an email interview. Excerpts:
How have gold products performed over other investment product such as stocks and real estate, among others, during the last few years?
An analysis of the performance of gold reveals that investment in MCX Gold has given investors better returns compared with investment in stocks (Nifty). Let us compare the returns from MCX Gold and Nifty over the span of a year.
For instance, if one would have invested in MCX Gold and Nifty on January 4, 2010, when Nifty was trading at 5239.80 and MCX Gold price was at R16,686, by March 3, 2011 Nifty was at 5544.70 and MCX Gold price was R 21,090. This shows that Nifty appreciated by 5% whereas MCX Gold appreciated by 26.39% during the period. On an average gold has given 22% returns every year in last six years. If one would have invested in gold (10 gm) in 2005 at R7,638 per 10 gm, it would have engendered 171% returns, with the price of gold having appreciated to R20,728 per 10 gm in 2010.
What types of investors are trading gold futures contracts? How has been retail investors’ participation?
MCX Gold futures are traded by various categories such as job holders, arbitragers, high net worth individuals, retail investors. As MCX Gold Contracts are designed for various types of customers depending on their appetite they trade in gold (1 kg), gold mini (100 gm), gold guinea (8 gm) and gold petal (1 gm).
Retail customers have shown interest in gold contracts, especially in gold guinea and gold petal, which give delivery of gold guinea coin at Ahmedabad and Mumbai, respectively.
How will retail demand for gold span out given the choice of gold-focused investment products?
India is the largest market for gold jewellery in the world. In 2010, demand for gold jewellery was at 745.7 tonne, which is 13% higher than the previous peak in 1998. This indicates the retail demand for gold. Given the choice of gold-focused investment products and the returns they have generated, retail participants would definitely invest in them.
Do you consider gold petal a better investment product compared with gold ETF products or e-gold?
Gold petal is definitely a better product in comparison with other products available in the market. In case of MCX Gold petal physical delivery is done after purchase of 8 gm, while in case of ETF most of the time physical delivery takes place only after purchase of 1 kg of gold. Besides, while an investor can keep gold petal as paper or demat form, in case of ETF the investors has to take a physical delivery.
How do the returns from gold petal and gold mini compare with gold ETF products or e-gold?
During April 1, 2010 and April 19, 2011, gold petal and mini and e-gold have given returns of 32% to the investors, while gold ETF (gold bees) gave 30.6% returns.
Is there shift from commodity futures contracts being used as hedging or risk management tools to investment products?
In the commodity market ecosystem hedgers as well as investors play an important role. Hedgers use the commodity market platforms to hedge their price risks i.e. their inventory against price volatility, whereas investors use the market to invest in gold. Gold as an asset class has always been considered as safe haven and has generated a return of 22% on an average, every year.