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ETFs, sovereign bonds better ways to invest in gold: Kaustubh Belapurkar, Morningstar

Physical gold has challenges of purity while buying a gold ETF is a better option.

ET Now|
Updated: Jun 26, 2019, 02.19 PM IST
Kaustubh Belapurkar
Gold prices hitting six-year high is majorly due to interest rate cut by the US Federal Reserve.
Gold hitting six-year high is majorly due to interest rate cut by the US Federal Reserve, says Kaustubh Belapurkar, Director, Fund Research at Morningstar Investment. Edited excerpts from ET NOW interview:

Gold is one of the favourite investment avenues of Indian investors. Though, returns of the gold funds have been just about 7 per cent in the last 6-7 years, could you run us through gold’s performance?
Gold prices hitting six-year high is majorly due to interest rate cut by the US Federal Reserve. If you take a look at the seven-year return of gold funds, it has almost been flat. Also, in the past few months the rupee has depreciated against the US dollar, which has assisted sentiment in the yellow metal. However, every time the market slip into negative territory, gold prices trade higher as 'safe haven’. Gold as a traditional investment option in a portfolio involves storing gold in physical form, an ETF or a gold fund.

Since we have advanced forms of investments in gold like ETFs and gold funds. How should one invest in gold?
While investing in gold one needs to consider three main factors. Safety, liquidity and returns. Of course, the conventional investors think about the size as one of the key factors for tracking the underlying gold price. ETF or exchange-traded funds, requires liquidity to purchase a unit in the exchange where bid-ask spread is not too wide. For instance, if you buy try to buy a large quantity, it somewhat affects the bid-ask spread on some of the counters. If you have very small investment amount and you do not want to go through an ETF route, then the gold fund alternative is the best.

Tracking the historical movement of gold prices and after the current sharp rally, do you think that gold prices are likely to rise? What is the outlook and what are the factors that could potentially aid gold prices?
We don't really use gold as a hedge right now as the gold has no intrinsic value. When we talk about the recent surge in gold prices, it has largely been driven by geopolitical tensions. Also, lower interest rates helped to push down bond yields, which further boosted gold prices. Even if you don't want to take a view necessary but you are holding a fair bit of physical gold and we know the challenges of purity and storage are the aspects that come into it, just buying a gold ETF or a even a sovereign gold bond is probably a better way of doing it rather than just holding physical gold.

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