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Gold Webinar

Gold Webinar

Chirag Mehta, Sr. Fund Manager, Alternative Investments & Ghazal Jain Associate Fund Manager, Alterative Investments at Quantum Mutual Fund share insights about potential of Gold and look at the key reasons for the dip in Gold prices, what does 2021 hold for Gold and what investors need to do right now.

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Quantum Mutual Fund

April 30, 2021
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Transcript

  1. GOLD; DON’T DISCOUNT THIS PRECIOUS METAL YET. Speakers: Chirag Mehta,

    Senior Fund Manager, Alternative Investments Ghazal Jain, Associate Fund Manager, Alternative Investments April 16, 2021
  2. A Quick Recap.. • Gold had one of its best

    runs ever in 2020 thanks to heightened risk sparked by Covid-19 + monetary and fiscal pandemic relief • Breakthroughs in vaccine development since November, along with optimism of economic recovery, however, sent gold prices lower • Since the start of 2021, gold has been under further pressure as the dollar and US bond yields have strengthened • Gold’s fall in 2021 has been surprising considering passing of fresh Covid-19 relief of $1.9 trillion in the US • The resulting dollar debasement should have sent gold rallying. But the opposite seems to have happened so far • Prices are supported as the Federal Reserve has assured markets of no change in its accommodative monetary policy
  3. Risk Assets are Rallying.. This is in spite of rising

    yields which should ideally result in lower asset prices Data as of 13th April 2021 Source: Investing.com S&P 500 Bitcoin
  4. 5 Reasons Why You Shouldn’t Discount Gold Yet

  5. Risk & Uncertainty

  6. One Year On, The Pandemic Lingers On.. New waves and

    variants of Covid-19 continue to take a toll on Global Economic Recovery
  7. Vaccine Rollout – A Slow Start

  8. Has Gold Finally Bottomed? Both the dollar and bond yields

    have started to climb down from their multi-month peaks reached in March Data as of 13th April 2021 Source: Investing.com 10-Year US Treasury Yield US Dollar
  9. Yields

  10. Yield Curve Control on The Horizon The Federal Reserve has

    a lot of incentive for stemming surging Treasury yields • Nominal yields in the US have been on the rise expecting higher inflation to trigger tapering by the Federal Reserve • But the central bank has denied any tapering in its bond buying or hike in interest rates any time soon. The bank wants to see inflation above 2% before unwinding • Rising yields increase borrowing costs for companies and consumers which could put a dent in the economic recovery • Equity markets could react negatively to higher yields as plugging a higher interest rate to determine long-term cash flows results in lower valuations for most stocks • Rising interest rates also increase the debt burden for governments • Going forward, it is possible that the Federal Reserve may opt for Yield Curve Control and impose interest rate caps on longer maturity bonds. Thus, we don’t expect a runway increase in yields beyond 2%
  11. Gold’s Sensitivity to Real Interest Rates Though higher nominal rates

    are creating headwinds for Gold, part of this will be offset by inflation US 10 YEAR NOMINAL TREASURY YIELD US 10 YEAR REAL TREASURY YIELD JAN 2021 0.93 -1.08 MARCH 2021 1.74 -0.63 CHANGE IN 3 MONTHS 81 BASIS POINTS 45 BASIS POINTS Despite their recent increase, nominal interest rate remain historically low & real rates across developed markets remain negative. This means non yielding Gold has potential to perform well.
  12. Negative Rates make Holding Gold more Attractive Lack of yield

    on fiat currencies supports gold -6 -4 -2 0 2 4 6 8 10 12 0 250 500 750 1000 1250 1500 1750 2000 2250 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 % USD Gold price US Real interest rate Data as of March 2021 Source: Bloomberg
  13. Rising Debt & Currency Debasement

  14. Governments too Dole out Trillions of Dollars of Fiscal Stimulus

    Value of fiscal stimulus measures as a share of GDP Source: Statista Data as of March 2021 Source: TradingEconomics.com Country Budget deficit as % of GDP 2020-21 Budget deficit as % of GDP 2019-20 India -9.5 -3.8 UK -16.9 -2.6 France -9.2 -3.1 Germany -4.8 1.5 USA -4.6 EU -0.5
  15. In A Bid to Boost the Pandemic Stricken Economy, Governments

    have Run Up their Debts to Unsustainable Levels Median debt-to-GDP ratio of country grouping based on G20 advanced and G20 emerging economies; Data as on: December 2020. Sources: Financial Times, IMF historical debt database Global debt levels soar to second World War levels
  16. Central Banks on A Printing Spree to Buy Government Debt

    Relentless money printing by central banks undermines confidence in fiat currencies, benefitting gold Data as of March 2021 Source: Bloomberg 0 1 2 3 4 5 6 7 8 9 10 US -FED JAPAN - BOJ EU -ECB CHINA - PBOC $ Trillion 0 5 10 15 20 25 30 35 40 45 50 55 60 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 % to GDP
  17. Gold is a Monetary Asset – Gold has kept up

    with money supply growth Data as of December 2020 Source: Fred Past performance may or may not sustained in future 0 200 400 600 800 1000 1200 1400 1600 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 US Money Supply M2 Gold prices Rebased = 100
  18. Rising Deficits & Debt in the US are Making the

    Dollar Vulnerable Weakness and falling confidence in the dollar tends to strengthen gold Data as of September 2020 Source: fred.stlouisfed.org Data as of December 2020 Source: fred.stlouisfed.org
  19. Inflation

  20. Higher Inflation is on its Way Gold will be a

    preferred asset as it generally moves in line with inflation and has potential to preserve purchasing power Data as of February 2021 Source: Bloomberg 27% Data as of December 2020 Sources: Louis Fed, lynalden.com
  21. INR Depreciation

  22. INR is Back to it’s Depreciating Trend The Indian rupee

    has been appreciating since start of 2021, hurting INR gold prices The appreciation in the rupee was primarily due to a positive economic outlook for India and robust fund flows in Indian equities by FIIs The flows seem to be slowing down or reversing now with the second wave of Covid-19 striking India and hurting its economic outlook with resulting partial lockdowns. In addition, the RBI’s Quantitative Easing has also put pressure on the currency The currency could now be back to its gradual depreciating trend, giving a push to domestic gold prices Data as of 13th April 2021 Source: Investing.com
  23. Gold Should be Back on Track After a Bad First

    Quarter Headwinds Tailwinds Accelerated vaccine rollouts Lingering pandemic with new waves and variants Economic recovery Accommodative fiscal and monetary policies Rising bond yields Higher inflation Strengthening dollar Rising deficits and debt
  24. Suggested Action Plan For Investors who already have 10-15% allocation

    to Gold • Stay put and watch gold play a risk-reducing, return enhancing role for your portfolio For Investors yet to allocate 10-15% to Gold • Prices have fallen from 2020 highs, it’s a good time to build your allocation • Invest 50% lump sum right now to benefit from lower prices, and stagger and accumulate the remaining 50% over the next 6 months Please note that the above is the suggested fund allocation only and is not to be considered as investment advice/ recommendation. Please seek independent professional advice and arrive at an informed investment decision before making any investments.
  25. Solutions to meet Sustainable Development Goals: SGD-17 SMILE was born

    out of our desire to support credible NGOs and create a steady stream of money flow for them Since 2018, Quantum MF investors have supported 7 NGOs from diverse sectors via the SMILE facility WHAT IS SMILE? THE SMILE STORY OUTCOME SO FAR SMILE enables Quantum MF investors to contribute 10% of their investment in eligible schemes to charities vetted by HelpYourNGO + = “SMILE”
  26. SMILE Process Flow Q Long Term Equity Value Fund Q

    Equity Fund of Funds Q Dynamic Bond Fund Q Multi Asset Fund of Funds Q Gold Savings Fund Q Liquid Fund Donated to NGOs selected by investors and vetted by HelpYourNGO HelpYourNGO sends donation receipts and 80G Liaises with NGO grantees Monitors & reviews INVEST IN SMILE FACILITY DONATE TO NGO’S DONATION RECEIPTS Investors receive periodic program reports from HYNGO on the NGOs supported by them Investors receive periodic program reports from HelpYourNGO on the NGOs supported by them
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  30. Disclaimer – Terms of Use The data in this presentation

    are meant for general reading purpose only and are not meant to serve as a professional guide/investment advice for the readers. This presentation has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been suggested or offered based upon the information provided herein, due care has been taken to endeavor that the facts are accurate and reasonable as on date. Quantum AMC shall make modifications and alterations to the performance and related data from time to time as may be required as per SEBI Mutual Fund Regulations. Readers are advised to seek independent professional advice and arrive at an informed investment decision before making any investment. None of the Sponsors, the Investment Manager, the Trustee, their respective Directors, Employees, Affiliates or Representatives shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way from the data/information/opinions contained in this presentation. The Quantum AMC shall make modifications and alterations to the performance and related data from time to time as may be required. Please visit – www.QuantumMF.com to read scheme specific risk factors. Investors in the Scheme are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme. Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-). Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956. 16th April 2021 Mutual fund investments are subject to market risks, read all scheme related documents carefully.
  31. Thank You 31

  32. Appendix

  33. Global Market-Moving Themes Lingering Pandemic + Long Road to Recovery

    Accommodative Federal Reserve + Expanding Vaccine Rollout + Fresh round of US Fiscal Stimulus Rising Government Debt + Higher Inflation Expectations Rising Bond Yields Strengthening Dollar + Dent in Economic Recovery + Taper Tantrum in Equity Markets
  34. What’s Moving Gold NEAR TERM WEAKNESS • Reduced safe haven

    appeal – worst of the pandemic is behind us + expanding vaccine rollout • Rising yields – increase the opportunity cost of holding non yielding gold • Stimulus and reflation trade fueling stock markets • Surging dollar benefitting from optimism about US economic recovery and rising yields • INR appreciation MEDIUM - LONG TERM STRENGTH • Rising inflationary pressures due to pent up demand + stimulus • Even though yields are rising, they are still at historically low levels • Stock market vulnerability to central bank policy tapering • Rising debt and deficit in the US to reduce dollar’s appeal • Revert to long term trend of INR depreciation