Gold is still ‘relatively cheap’ and could surge back toward its all-time high
Gold is still a “relatively cheap” investment opportunity and could keep rising even if it soon topped $1,900 per troy ounce, one strategist said Thursday. TD Securities head of global strategy Richard Kelly told CNBC’s “Street Signs Europe” that “gold had a phenomenal run-up over the course of last year, and when that reversed, I think it scared a few investors off.” The spot gold price hit an all-time high of $2,063 per troy ounce in August last year. However, Refinitiv data shows it now stands at $1,877. Gold was under pressure in the first few months of 2021. This came amid a sharp jump in U.S. Treasury yields as traders started to bet that inflation would cause the Federal Reserve to hike interest rates and taper its accommodative monetary policy. Gold is traditionally seen as a hedge against inflation but any attempts by central banks to rein in inflation is usually bad for bullion.
Oil settles higher on stronger demand outlook as U.S inventories fall
Oil prices settled higher on Wednesday as a drop in U.S. crude stockpiles reinforced expectations of improving demand ahead of the peak summer driving season, offsetting worries that a possible return of Iranian supply would cause a glut. Brent settled up 16 cents, or 0.3%, to $68.87 a barrel and U.S. West Texas Intermediate (WTI) crude settled up 14 cents, or 0.2%, at $66.21 a barrel. Both benchmarks pared losses after government data showed U.S. crude stocks at the Cushing, Oklahoma, storage hub fell last week to the lowest since March 2020. Refiners ramped up utilization rates to pre-pandemic levels. Russia said the Organization of the Petroleum Exporting Countries and allies, a group known as OPEC+, should consider a possible increase in Iranian output when assessing further steps. OPEC+ is bringing back 2.1 million barrels per day (BPD) of oil production through July, easing cuts to 5.8 million BPD. Their next meeting is set for June 1.
Mainland Chinese markets jump more than 2% as Asia stocks rise; investors watch regional tech shares
Mainland Chinese stocks led gains regionally, with the Shanghai composite rising 2.4% on the day to 3,581.34. Investors also monitored technology stocks in Asia-Pacific on Tuesday following gains for their counterparts overnight stateside. Singapore’s economy expanded by 1.3% year-on-year in the first quarter, official data released Tuesday showed. The country’s Ministry of Trade and Industry also announced Tuesday that it would maintain Singapore’s GDP growth forecast for 2021 at “4.0 to 6.0 percent.”
Indians invested ₹700 cr in U.S. markets via Stockal in FY 21
Global investing platform Stockal revealed that over 50,000 investors from India invested more than ₹700 crores in U.S. stock markets in companies like Tesla, Netflix, Apple, etc., in the last 12 months. “We saw more than ₹3,500 crores worth of transactions last year. There hasn’t been a better time to start investing abroad,” the company added.
Global property markets ready to soar this year on monetary, fiscal support
Average home selling prices have hit eye-watering levels in 2021 in some countries. That trend is expected to continue, driven by low mortgage rates, swift vaccine rollouts, and the easing of restrictions after deep pandemic-induced recessions last year. The global boom in property prices comes alongside soaring stock markets, which quickly bounced back from a slump on pandemic-driven economic damage and devastating job losses, to focus on unprecedented stimulus and the recovery at hand. Reuters polls of more than 100 property market experts taken May 11-24 showed big upgrades to house price forecasts for the United States, Britain, Canada, Australia, and Dubai compared with just three months back, outpacing expected GDP growth and consumer price inflation.
European stocks steady after Tuesday’s rout, eyes on U.S. inflation data
European stocks steadied on Wednesday after their worst selloff this year as strong earnings reports and signs of a speedy economic recovery offset concerns about a rapid rise in prices. The pan-European STOXX 600 index rose 0.2 percent after falling almost 2% on Tuesday as investors offloaded riskier assets on worries that rising U.S. inflation could lead to tighter monetary policy. European earnings are now expected to surge 90.2 percent in the first quarter, as per Refinitiv IBES data, up from a forecast of 83.1 percent growth last week. UK’s blue-chip FTSE 100 outperformed as data showed Britain’s economy grew by a stronger-than-expected 2.1 percent in March from February. Ample liquidity, a global semiconductor shortage and a recent rally in commodity prices are adding to fears of inflation as developed economies gradually reopen after lockdowns. All eyes will be on U.S. consumer price data for April that is due later in the day, with analysts expecting a 3.6 percent lift in year-on-year prices, boosted by last April’s low base.
Chinese bitcoin traders still wield ‘enormous influence’ despite Beijing’s 4-year crypto crackdown
Chinese bitcoin traders continue to thrive despite Beijing’s four-year crackdown on cryptocurrencies, experts told CNBC. China shut down local exchanges and banned initial coin offerings in 2017, but this year, there have been renewed fears of a harsher crackdown from authorities. Bitcoin’s price has been impacted by recent comments from industry bodies and regulators regarding cryptocurrency in China.
Bitcoin crash opens door to a tax loophole for investors
Bitcoin, ethereum, dogecoin and other cryptocurrencies have seen prices plunge in recent weeks. These investors can leverage those losses in a way that a typical stock or mutual fund investor can’t. That’s because the so-called wash sale rules don’t apply to crypto, according to financial advisors. But there are important caveats. Crypto investors may be shellshocked by a recent plunge in prices. But that sell-off has a silver lining: It opens the door to a money-saving tax strategy. Popular cryptocurrencies like bitcoin and ethereum shed more than half their value in volatile trading over the past month or so. A bitcoin investor who bought at the mid-April peak (around $65,000) and sold low on Wednesday (near $30,000) would have lost 54%, but crypto losses are treated differently than those of stocks and mutual funds. That’s because so-called wash sale rules don’t apply, according to financial advisors. This offers two benefits to crypto investors: They can sell crypto for a loss, and then use that loss to reduce or eliminate capital gains tax on winning investments. Then, they can quickly buy back the crypto they sold so as not to miss out on a subsequent rebound in price.
Japan can be an another good option for Diversification
Investing in international markets comes with various benefits. Investors benefit from diversification across different geographies, thereby spreading the investment risk across different economies. With value investing back in fashion, Japan can emerge as the next hotspot. The Bank of Japan has been one of the largest investors in Japanese stocks through exchange-traded funds. With nearly 30 trillion yen incremental investments (around $50 billion per year) since 2016, its presence can add another pillar of strength to the Japanese markets. While domestic institutional investors have not been favouring equities due to unpleasant experiences in the past, the recent run-up in global yields may push them to realign their investment portfolios from debt to equity. This can be another trigger for the next set of inflows into the Japanese markets. Japan has been a diversified market, with the financial sector, insurance companies, auto industries, manufacturing, and trading companies having a fair representation.
In India, buying gold is more of a tradition than just investing. It is considered as a symbol of prosperity and luck. This auspicious metal has given good returns over the long term. When you create your wealth portfolio, it is suggested to allocate atleast 10-15% to Gold investment. This is majorly because this yellow metal is used to hedge against inflation and is also negatively co-related to stock market investments.
In other words, we can say that gold protects your portfolio from high volatility of equity markets. Thus it provides stability to your portfolio and often proves fruitful in times of crises.
How to invest in Gold?
There are multiple ways of getting exposure to gold asset class. Some of these are physical gold jewellery, sovereign gold bonds, Gold Mutual funds and Gold ETF.
For investment purpose, physical gold does not make much sense owing to high making charges and lack of safety.
If we talk about Sovereign Gold bonds (SGB), it is one of the best investment to increase your allocation to gold. However, it is suitable only to those investors who has a time horizon of 8 years. It comes with a lock-in period of 8 years and post which on maturity, the capital gains are tax free. Not only this, apart from capital gains, you are also entitled to receive interest of 2.5% p.a. These unique features make investment in SGB bonds very attractive.
If we see on the flip side, there are two major drawbacks of investing in SGB bonds. First is availability and second is liquidity. One can invest in these bonds only when it is available for subscription.
For an investor, who is looking for liquidity, Gold mutual funds and Gold ETFs will be the best option. It is considered better as you can invest here anytime of the year. It simplifies the entire gold investment process.
Investors often get confused between Gold Mutual fund and Gold ETF? Are you also getting a question in your mind – which is better Gold Mutual fund or Gold ETF?
If yes, let us discuss these two options in detail.
Gold Exchange Traded Funds invest in physical gold. The aim of Gold ETF is to track the price of domestic physical gold and invest in 99.5% purity gold bullion. Each unit of a gold ETF is equal to 1gm of gold. It is essential to note that it is backed by physical gold of very high purity which is stored in secured vaults.
These are listed on stock exchange and one can buy and sell gold ETF like stocks. Thus, it provides ample liquidity. Since ETFs are held in demat form, you need to have a demat account to invest in Gold ETFs.
Gold Mutual Funds
A gold mutual fund is an open-ended mutual fund scheme investing in units of gold ETFs. This does not require any demat account. Like any other mutual fund, there is complete flexibility and one can invest and redeem from gold funds anytime.
We can also say that Gold MFs are investing in Gold ETFs itself but indirectly.
Related article : Know Your Expenses When You Go For A Mutual Fund Investment
Gold MF Vs Gold ETF
Now that we are clear with the basic understanding, let us see the comparison between both of these options.
- Cost – Investing in gold MF via broker is a little expensive compared to gold ETF.
- Price – Gold MF units are priced at their respective NAV similar to any other mutual funds. NAV is updated on AMFI website on a daily basis from Monday to Friday. Price of gold ETF on the other hand is updated on real time basis just like stocks.
- Mode of investment – SIP is available for Gold mutual funds whereas gold ETFs are not SIP based. You can still invest in gold ETF on a monthly basis to accumulate units. If you are a layman investor, it will be easy to invest in Gold Mutual fund. For seasoned investors who can study the market and take effective decisions on investments, Gold ETFs will be a better choice.
- Type of Investment – Gold MFs invest in gold as well as other liquid funds. However, Gold ETFs invests almost 100% in pure gold and very minimal balance in debt.
- Liquidity – Both these gold investment avenues are highly liquid. But some Gold mutual funds comes with an exit load which differs from fund to fund. Gold ETF has an edge here as there is no exit load.
- Transferability – Gold ETF can be converted into precious metal whenever needed unlike gold mutual funds.
With this, we hope you now have a better clarity to distinguish between Gold ETF and Gold mutual fund. If your portfolio doesn’t have 10-15% allocation to gold, it is highly recommended that you do so now.
We all want to make that extra money on the side, and if you really put your mind to it, you can make your ends meet. Do you think, the beggars on the road have no choice to make a living for themselves? They do have a choice. We gave them money, when they come to beg, is only encouraging them more, to continue begging. Even the roadside vendors, may not have their shops registered or may not even pay income tax. Two main reasons could be literacy and corruption. Literacy because, they wouldn’t know the importance of declaring their income and getting themselves registered and corruption because, if they get caught, they pay bribes to be let off the hooks. One way you can’t really blame them, because that is their only source of income and that is how they make their ends meet, they don’t have much of a choice. So basically everyone has needs, but what we are willing to do, to fulfill those needs, is what separates us from the beggars. Salary is not enough to make ends meet, as our demands keep on increasing. So what other choices do they have?
Well, there are many more ways to earn that extra income, it can be done through investments. You invest a certain sum of money in any investment instrument and give it time to grow through the interest earned, in other words, your invested capital is being appreciated, this capital appreciation is also known as capital gains. We all know, where there is income, there is tax, some investments have more advantages over the other investments. Also, the duration is one more important factor that decides,’ how much tax you pay’ and also if you have incurred a long term or short term capital gain. The longer the investment kept, the better it is for you, since you save more tax. Let us now look at how a short and long term investment is categorized:
- Short term investment in case of Equity, debt, and real estate: For equity, if the investment asset is held for less than 12 months and attracts gain, then it is considered as short term capital gain and will be taxed at a flat rate of 15% + educational cess at 4%. For debt, real estate, and physical gold, gold ETF, the short-term capital gain will arise, only if the asset is held for less than 36 months and will be taxed according to their slab rates + educational cess at 4%.
- Long term capital gain in case of Equity, debt, and real estate: For equity, if the investment is held for more than 12 months, the amount withdrawn will be tax-free in the hands of the investor up to a realized gain of 1lac and 10% tax will be levied on any gains above this threshold of 1 lac. For debt, real estate, and gold, the long term capital gain will arise, only if the asset is held for more than 36 months and will be taxed at 20% with indexation benefit + educational cess at 4%.
One more term that we need to understand before we move ahead is ‘Indexation Benefit’. What is the indexation benefit? Say Mr. Paul bought a house 5 years back for Rs. 60 lakhs, he wants to sell his house now for Rs. 1 Crore, what will be the capital gain he earns? Now, I’m sure many of you will say Rs. 40 lakhs. But that’s wrong because, in those 5 years, the value of the house has also appreciated saying Rs. 80 lakhs, so Mr. Paul has made a capital gain of only Rs. 20 Lakhs. So indexation is a technique to adjust the income payments, through a price index and the benefit is given, just to maintain the purchasing power of the people, after taking inflation into consideration.
As you can see for yourself, investing for a longer term is better than investing for a shorter term. Now let us look at the 5 categories, where you can incur long term capital gain and as we have already seen you can save maximum tax when your capital assets are long term in nature:
This is a very risky type of investment, as it has direct exposure in the market. Under equity, there are again numerous instruments in which you can invest, namely shares, mutual funds, etc. Since the risk is very high, the tax implication on equity investments is also very lenient. In fact, a person can save more tax, if they invest in equity and it could be tax-free if these investments are held for more than 12 months and the gain amount is less than 1 lac. However, there is only one equity mutual fund, which is known as Equity Linked Saving Scheme, which is available for deduction under section 80C. This fund’s lock-in period is for 3 years, as it is the only fund available for deduction.
For example, If a person has invested in 100 shares for Rs. 50000/-, he now wants to sell off those shares for Rs. 80000/-, within 6 months from the date of purchase, he has attracted short term capital gain, so now he has to pay 15% + 4% on that profit of Rs. 30000/-. Let us say he has kept it for 12 months and wants to sell it now at Rs. 100000/-, the whole amount of Rs. 50000/- will be tax-free in the investor’s hands.
This is a safer option as compared to equity funds in terms of risk, so the tax levied on debt instruments is also more as compared to equity investments. But the same logic of the holding period of the investments is applied here as well, the longer the investment held, more of your tax gets saved. Unlike equity investments, after 36 months of holding the investment, the amount withdrawn will not be tax-free, but the person will get the indexation benefit. So once the indexation benefit is deducted from the sale consideration, 20% + 4% will be levied on the remaining amount.
This is another asset, held by an individual, which can attract capital gains. If a person sells his house, the profit that he makes on the sale of his property will be taxed on, for how long he has held that property. Again if it is a short-term capital gain, it will be taxed as per the individual’s slab rate. On the other hand, if it is a long term capital gain, then tax will be charged at 20% with indexation benefit + 4% educational cess. Now, an exemption on the long term capital gains is available under section 54. But to claim this deduction, the following has to be fulfilled:
- To claim this exemption, a residential property must be bought, it could be either old or new or to be constructed.
- To claim this deduction, only two house property can be bought and it should be in the name of the seller too.
- This property has to be situated in India, this deduction available cannot be claimed for properties bought or constructed out of India.
- The seller should purchase a residential house either 1 year before the date of sale or 2 years after the date of sale. In case the seller is planning to construct a house, he will have to construct the residential house within 3 years from the date of sale.
Please keep in mind that, in the long term capital gains are not invested in a new house property, before the date of tax filing or 1 year from the date of sale, then the same amount can be deposited in a Capital Gains Account, as per the Capital Gains Account Scheme, 1988. Also note that, if the property bought is sold before the completion of 3 years, then the exemption will be reversed and now the gains acquired from the sale will be taxed as short-term capital gains. So like equity, in real estate also, there is a chance for your long-term capital gains to be tax-exempt.
This is a completely different category and the long-term gains taxed, is also different from the rest. So if these bonds or debentures are sold before the completion of 12 months, then it falls under short term capital gains and will be charged as per the individual’s slab rate. However, if it’s sold after the completion of 12 months, then it is taxed at a flat rate of 10%. So again here, you have long term gains having the upper hand.
There are different ways in which people can invest through gold. Buying gold is a common way of investing in it. It is, however, more of an asset than an investment. For gold, only after the completion of 36 months, will it be considered long term and will be taxed at 20% + 4% with indexation benefit. If it doesn’t complete 36 months, then it will be charged according to the individual’s slab rate. It is better not to hold gold physically, it is a safer option to buy paper gold. The Government has proposed that Sovereign Gold Bonds, issued by the Reserve Bank of India, will be exempt from capital gains tax which makes it one of the best ways to invest in Gold. Another exemption that has already come into force, since April 2016 is, under Gold Monetisation Scheme, the deposit certificates issued, will also be exempt from capital gains tax.
Related Article : Sovereign Gold Bonds – Should you invest?
Note: In the case of SIPs, in mutual funds, each of your SIP has to complete, the relevant months to fall into the long term capital gain category. For example, SIPs in equity mutual funds, have to complete 12 months individually to be tax-free. So if I invest Rs. 1000/- every month, starting from January 2020, then the SIP of January 2020 ONLY will complete 12 months in Jan 2021 and that amount plus the interest earned on it will be tax-free (i.e. Rs. 1000 + interest amount ). So February’s 2020 SIP will be tax-free only in February 2021 and so on. In the case of the Equity Linked Savings Scheme, each SIP will have to complete 3 years.
So it’s very clear now, that the longer you stay invested, the better it is for you. It is very easy to dream, but the hard part is putting that dream into action, you have the above options to guide you also, what are you waiting for? We all crib about how we have to pay tax for all the incomes we earn; well now we have a choice to reduce that tax payment.