Gold holdings

A local investor has asked about the scenario of investmentin gold. In his email, he has quoted recent skirmishes between India andPakistan when their soldiers were in an eyeball to eyeball contact with eachother. The investor has also referred to parliamentary elections which are nowa few weeks away. In such situations, he says, the investors are pushed into adilemma as they find too much of uncertainty hovering around the markets.

“Is investment in gold safe during the times of politicalunrest?” He asked.

   

When we look at investment in metals, we find that of allthe precious metals gold is the most popular mode of investment. People haveintrinsic love to store their wealth in gold as it’s considered most dependablemetal during uncertainties and economic crises. Time has proved that gold ismore stable and liquid than any other asset classes and has acted as a strongwall against any crises.

As far as professional investors are concerned, let mereiterate that they should increase their look for exposure to gold if theeconomy and stock markets are highly volatile and lots of uncertainties arevisible. For the sake of diversification and hedge against marketuncertainties, experts have always favoured 2-5 per cent investment in gold innormal circumstances. Otherwise, it should be 10 per cent. However the idealway to invest in gold is to invest in it regularly. And this way one canaverage out his price purchase to lay hand on higher returns when one decidesto en-cash his gold holdings.

Currently, gold price has been on a steady decline over thepast couple of months as it fell by over 4% as on March 28. On February 01, itsprice was Rs.33,262 per 10 grams and fell to Rs.31,854 during the period. Thedecline in price is contrary to the international spot price which witnessed amarginal decline of less than 1%.

Here the point is that falling price of gold in the domesticmarket should not be a temptation to invest in gold as one has to understandthe dynamics of declining price scenario. The standing of the Indian rupeeagainst the US dollar is key factor to drive gold prices in the domesticmarket. India is mostly dependent on imports for domestic demand for gold.Thus, the gold is to be purchased essentially in dollars. So when the rupeeweakens against the US dollar, the price for imports like gold goes up andvice-versa.

Precisely, the current change in price is because of therupee appreciation. The rupee has appreciated because of the strong inflow offunds in the markets. When in September-October last year, the rupeedepreciated to Rs.74.38 against the US dollar, the gold price in domesticmarket was recorded at highest levels in the past six years. Now, when therupee appreciated against the dollar, the gold price came down by over 4%.

Meanwhile, exploring investment opportunities in gold is notcumbersome now. You can can own gold in dematerialized form via Exchange-TradedGold Funds or ETFs instead of owning it in physical form. Over a period oftime, the gold ETF has emerged as a most convenient and investor-friendlymedium of investing. Its units represent physical gold that is 99.5% pure, witheach unit representing 1 gram of gold. The units are traded on the stockexchanges like a stock of a company.

Gold ETFs absolve the investors from the worries onadulteration or impurities. Besides, an investor can track value of hisinvestment in real time and off load it as and when needed by him. Selling andbuying of the commodity in physical form involves a cost. The costs areinvolved in ETFs also, but here these are much lower than the expenses involvedin buying – selling of gold in physical form.

Precisely, gold ETFs have wriggled themselves into a nichein today’s gold market by providing a platform for investors to invest in goldwho ordinarily would not, without exerting too much effort.

To conclude, one can go for the steady accumulation of goldas an asset creation to derive maximum benefit,. Don’t wait for prices to comedown in order to buy it. We have witnessed greater upward movement of goldprices than the downward movements. So, this also means anytime is a good timeto buy gold.

(The views are of the author and not that of the institution he works for.)

sajjadbazaz@greaterkashmir.com

Leave a Reply

Your email address will not be published. Required fields are marked *

1 − 1 =