Trade in Gold this Lohri

Lohri—is the festival of harvest—in India where the winter sown crops i.e., Rabi crops are ready for harvest and farmers bring the crop to their homes to mark the beginning of the new season. It is a belief that the new harvest season brings fortunes to mankind as the season is changing from winter to summer. Likewise, buying or investing in gold is considered auspicious for Indians as it is considered one of the forms of Goddess Laxmi. Since Lohri is considered as the festival of harvest, we would like to appraise our investors to invest in gold to get additional income in the long run as the gold is likely to flourish exceptionally well. Looking back, historically gold has given a positive return in the long term. For ex., five years back gold was trading at Rs. 30000 per 10 grams, which is now trading above Rs. 55000 per 10 grams, higher by 80%.

Gold is one of the largest traded commodities across the globe on the commodity exchanges. It is considered as an inflation hedge as well as safe-haven asset because of its store of value. It is having a widest usage in jewellery, technology, investment, purchase from central bank as a reserve. Gold, one of the most valuable precious metals, is prized for its beauty, liquidity, investment potential, and industrial properties all over the world. Gold is commonly regarded as a financial asset that maintains its value and purchasing power throughout periods of inflation.

According to World Gold Council (WGC), 75% of world gold supply comes from mining while balance 25% of supply met by recycled gold. On the demand side, gold is consumed for fabrication, in the form of bars & coins, purchase by central banks as well as in form of exchange traded funds and similar products. Of the total demand, fabrication demand accounts for 45% of total demand followed by bars & coins at 24%, ETFs & similar products at 23% and 7% by central banks.

The global demand in first 3 quarter of 2022 was 3386.5 tons, which was higher by 17.87% YoY, according to World Gold Council. Of the total demand, gold consumption for jewellery was 1588.98 tons, higher by 5.20%. Central banks bought a whopping 673 tons of gold in first 9-months of 2022, higher by 61.86%. Technology and investment demand was 236 tons and 888 tons, respectively. For the year 2023, the global gold market in general and India in particular are expected to showcase a strong growth owing to increased safe-haven asset buying demand.

The global commodities market is expected to showcase a mixed trend in 2023 due to the slashing of global growth forecast by IMF, easing inflation, pause in an interest rate hike, weakness in dollar and re-opening of China. Global economic activity is witnessing sharper than expected slowdown due to cost of living crisis and tightening financial conditions in major countries, which is likely to have a mixed impact on the commodities market. Despite resumption of economic activities after 2-years of slowdown due to COVID-19, major economies are still under the influence of recessionary fears.

Bullion segment is expected to gain from above mentioned factors where gold is likely to emerge as safe haven asset while silver is likely to attract purchase of industrial sector. Major economic drivers of the United States such as housing market, labour market, higher mortgage rates are supporting the gold to remain higher. The U.S. Federal Reserve is likely to hike the interest rate to 5% in first half of 2023 and then reduce it to 4.5% in second half as inflation is cooling. The MCX gold is expected to make a fresh all-time high of Rs. 62000 per 10 grams in 2023 as per ICICIdirect’s Commodity Market Outlook. Hence, gold is likely to be a Golden Harvest for investor in 2023.

How to trade/invest in gold?

Gold trading or investment can be done through various means as presented below.

1. Physical gold
2. Gold Futures

• Gold 1 Kg
• Gold Mini
• Gold Guinea
• Gold Petals

1. Gold Option
2. Gold ETFs
3. Sovereign Gold Bond

Summary

The new harvest season—Lohri—is likely to be a golden opportunity for traded or investors opting gold as the market is likely to show a bullish trend in 2023, owing to uncertainty about global economic growth, inflationary concern in few countries and investor inclination towards safer asset class. Gold is considered as most auspicious during festival and marriage seasons as well as a prestigious aspect for many Indians to hold gold. Despite of all these factors, Indian gold market follows the U.S. market for its pricing, hence, economic and political developments in the United States as well as other asset class movement will have its impact on the gold prices.

Disclaimer: ICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investments in securities market are subject to market risks, read all the related documents carefully before investing. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.