Among all the asset classes, gold has probably been the most secure one during times of turmoil and uncertainty. The investments in the metal have yielded consistent returns and has always been a trusted investment to fall back on for many.
23 Oct, 2011, 09.59PM IST
Ashish Gupta,ET Bureau
Among the various asset classes, gold has probably been the most secured one. Investments in gold have yielded consistent and assured returns, especially in volatile times. Gold has always come out as a trusted pillar to fall back on.
During the recent upheavals in the global markets, including the US downgrading and the Euro zone issues, investors started ploughing money into gold. Consequently the demand for gold went up. Also, as there were no other comparably safe assets to invest in, the price of gold skyrocketed. Gold has been up for 10 years in a row.
According to some analysts, going by the present trend, and given the fact that the festival season is on here, the price of gold will escalate further and may touch around Rs 29,000 to Rs 30,000 per 10 gm. This would mainly be because of the high internal demand and the fancy of consumers here for gold. The marriage season, in particular, fuels the demand.
Gold is still the best hedge against volatility. The price of gold witnessed extreme volatility in September, following the deepening European debt crisis. The price touched a high of $1,924 and a low of $1,524 per ounce in September.
India is a leading consumer of gold. In fact, gold is now the second-largest import, after crude. According to the World Gold Council, India's gold imports rose by 60 percent in April-June 2011 from a year ago, as investors parked money in gold as a safeguard against inflation. Gold imports, which stood at 550 tonne for the January-June period, could cross the 1,000 tonne mark this year. The total gold import was about 950 tonne in 2010.
Gold is expected to perform best among commodities next year and may rally to a record level as investors seek to safeguard their wealth against slowing economic growth. It has gone beyond the 2012 target for bullion by 35 percent to $2,200 an ounce. Gold is considered a safe haven. It is the closest commodity to a global reserve currency and has been the most resilient one in the past recessions. According to many analysts, gold will continue to extend its rally next year as Europe struggles through the debt crisis. Globally, central banks and investors accelerate purchases in order to protect their assets from weaker currencies.
So, what should the small investors do? How do they make best use of this situation ?
Considering the fact that purchase of physical gold as an investment is a tedious and risky option, a small investor can go in for a gold exchange-traded fund (ETF). This way, he can dabble in gold without actually owning the metal. Further, one can start with small investments and build the positions gradually. There is no need to make huge investments in one go.
An investor only needs to have a demat account with a depository participant to invest in an ETF. The exit is also easy as one just needs to pass on the instructions to the depositary participant. There are no charges payable, which may otherwise be payable in case of sale of gold. Gold ETFs provide a convenient, simple and cost-effective way of investing in gold. As the price movement is volatile, one can invest a small amount on a regular basis. This way, the rupee cost averaging will help in building a decent portfolio over time. Moreover, it will minimise losses in case the price falls in future.
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