Gold Prices Hit the Roof at ₹72,000! Is Now the Right Time for NRIs to Invest?

Explore the soaring gold prices and discover whether it's a golden opportunity or a cautionary tale for NRIs looking to invest in India's gold market.
April 16, 2024
min read

A Golden Spike: ₹72,000 and Climbing!

Gold prices have recently soared to unprecedented heights, with the cost per 10 grams breaching the ₹72,000 mark—a historic peak that has investors buzzing. As Non-Resident Indians (NRIs) look towards the Indian market, the big question emerges: is this surge a golden ticket for investors or a sign to proceed with caution? 

The Gold Price Surge Explained

The recent rally in gold prices is influenced by many complex factors. 

- Market Fluctuations & Inflation in the West

Heightened market volatility and rising inflation rates are pushing investors towards gold. As a stable asset in these tumultuous economic conditions, gold appeals to those looking to safeguard their investments against inflation and currency devaluation.

-Geopolitical Tensions

Global conflicts, notably between Russia and Ukraine and Israel and Palestine, have fostered uncertainty, driving investors to seek the safety of gold. This move is a response to fears about the stability of other investment options during international crises.

-COVID-19 Impact

The economic repercussions of the COVID-19 pandemic, even after 4 years, have increased the reliance on fiscal stimuli, raising inflation concerns. Investors are turning to gold to protect against the potential decline in the purchasing power of paper money.

-Cultural and Seasonal Demand in India

For centuries now, gold has been deeply embedded in the very fabric of Indian culture, particularly during festive and wedding seasons when demand spikes. These traditions not only boost domestic gold prices but can also influence global markets due to India's significant role in the world gold market.

-Shift in Central Bank Strategies

In response to uncertainties around the U.S. dollar's dominance, central banks globally, including those of China and India, are diversifying reserves away from traditional fiat currencies and increasing their gold holdings. This strategic diversification also contributes to higher demand and surge prices for gold.

Source: 9 April 2024, IIFL, 

Why Gold? Why Now? 

For NRIs, the investment in gold is not just an economic decision but also an emotional one. Gold holds immense cultural significance, representing both prosperity and security. 

But beyond the emotional connection, gold is a hedge against inflation and currency fluctuations. Its value rises when economies face downturns, making it a safe haven in turbulent times. This characteristic particularly appeals to NRIs, who often grapple with currency exchange rates and seek stable investment platforms. 

However, NRIs should be mindful of the tax implications, such as income tax and wealth tax in India, as well as any taxation in their country of residence. 

The Risks Behind the Shine

Investing in gold is not free from risks. The high volatility can result in substantial price fluctuations, leading to significant losses if the purchase timing is wrong. Moreover, the liquidity of physical gold can be low, meaning it might not be easy to convert it back to cash quickly, especially for the NRIs. Regulatory changes, particularly concerning the import and taxation of gold, can also impact the return on investment. 

Is Now the Right Time to Buy Gold as an NRI?

Timing is crucial in maximizing investment returns from gold. Historical data suggests that buying during a market low typically yields better returns. However, predicting market lows is challenging, and waiting for prices to drop from a peak like the current one can mean missed opportunities if the prices do not adjust downwards as expected. Diversifying investments and allocating only a portion of your investment portfolio to gold can balance the risk. 

Experts suggest that a combination of factors, including Diwali celebrations and the winter wedding season, could push gold prices to ₹76,000 by December 2024. 

Physical Gold vs. E-Gold: What's Best for NRIs?

Buying gold in today’s times presents a shiny dilemma, especially for NRIs who are not in India: Touch or Tech? Physical gold offers tangible security and cultural value, important for many Indian festivities and rituals. However, it poses challenges regarding storage, security, and liquidity. 

On the other hand, e-gold (digital gold) provides ease of trading, high liquidity, and no need for physical storage, making it a practical choice for those living abroad. 

The decision ultimately depends on personal preferences for safety, usability, and investment goals.

The Process of Buying Gold as an NRI

Purchasing gold as an NRI isn't very different from doing so as a resident Indian but with a few additional considerations. 

1. Deciding On the Type of Gold Investment: 

Before diving in, NRIs must decide the type of gold investment they're interested in:

  • Physical Gold: This includes jewelry, coins, and bars.
  • Digital Gold: Offered by certain apps and platforms, it allows you to buy gold digitally.
  • Gold Mutual Funds & ETFs: These are financial instruments that track the price of gold.

2. Understanding the Regulatory Framework: 

NRIs can invest in gold in India without any special approvals. However, they should know the Foreign Exchange Management Act (FEMA) guidelines. For instance, while NRIs can bring gold into India, certain duty charges apply if the gold exceeds the permissible limit.

3. Choosing the Right Platform/Outlet

  • For Physical Gold: NRIs can purchase from reputed jewelers. Always ask for a purity certificate.
  • For Digital Gold: Platforms like Paytm, PhonePe, and certain banks offer digital gold purchase options.
  • For Gold Mutual Funds and ETFs, NRIs can invest through their NRE/NRO accounts using platforms like Zerodha, HDFC Securities, etc.

4. Payment Methods

NRIs can make payments through their NRE (Non-Residential External) or NRO (Non-Residential Ordinary) accounts. Credit cards or international debit cards can also be used, but it's essential to be aware of transaction charges.

5. Repatriation of Gold

If NRIs wish to take gold out of India, they should be aware of the customs regulations of both India and the country they reside in. For instance, if an NRI wishes to take gold jewelry to the USA, they must declare it if its value exceeds $10,000.

6. Selling Gold

Selling gold in India is straightforward. For physical gold, you can approach jewelers or gold resale companies. For digital gold or gold mutual funds, the selling process is facilitated through the platform or bank where you made the purchase.

More Reads On Gold Investments for NRIs 

  1. Tax Implications for NRIs Investing in Gold
  2. Are Gold Mutual Funds A Smart Choice for NRIs?
  3. Top gold mutual funds for NRIs in 2023 

Looking Ahead: Will the Gold Craze Continue?

Experts are divided on the future trajectory of gold prices. Some predict that the economic uncertainties and strong demand will continue to increase prices. Others foresee a stabilization or even a correction as markets adjust to global economic recovery post-pandemic. 

For NRIs considering whether to invest in gold, it's crucial to evaluate both personal financial goals and market conditions. If the goal is long-term security or diversification, gold might be a suitable addition to your investment portfolio. However, if immediate liquidity and low volatility are priorities, exploring other avenues may be advisable. NRIs should keep a close watch on global economic indicators and market trends to make informed decisions.

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