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Gold fever continues to grip investors as the yellow metal touched a new peak of 29,000 per grams recently.
Gold futures also surged to
record high of Rs 28,500 per 10 grams on
buying by speculators. Driven by global economic turmoil, gold continues
to gain as the ultimate safe haven.
Fundamentals behind this rally-
- Gold prices are directly connected with economic stability. Debt default fears in Europe, continuous decline in the US economy and political uncertainty in west Asia and North Africa drove investors to seek a safe haven.
- India and China are the world's two biggest consumers of gold. According to the World Gold Council, both countries made up 57 percent of first-quarter global consumer demand for gold. India bought 286 tonns of gold overseas in the first quarter, up nearly 10 percent from a year ago. Experts believe that in both countries demand will continue to climb in the near future as growing wealth and high inflation make gold an attractive investment.
- Gold is considered the best hedge against inflation. As developing countries are fighting with price rise, investors are likely to bet on the precious metal.
- Not only that, in 2010 central banks became net buyers of gold for the first time in 21 years, underlining the growing demand of the precious metal.
How long will this rally continue?
Experts believe that in the present global economic scenario gold will continue to glitter. However some experts feel that gold prices are due for a correction in the near term, but prices are likely to touch 30,000 per 10 gram in another couple of months. However, some studies reveal that prices may touch 25,000 per 10 gram by the end of this year, but this will depend on global economic scenario.
Is it right time to buy gold?
As we said in earlier articles, every individual should have gold as 5-10 % of his total portfolio, as it is the best hedge against the inflation as well as economic uncertainties. In any circumstances gold should always form a part of any investor’s portfolio.
Are you planning to buy gold jewellery?
If your answer is yes, you need to consider following points-
Think beyond the traditional way. Gold- linked financial products such as ETF or other form of paper gold will fetch you much more return in comparison to traditional ornaments. According to a recent survey Gold ETFs were the third best performing category and gained 20.8% till March 2010. Invest whenever there is a small correction in prices and when your budget allows.
Points to be noted down
• Buying gold jewellery is a form of consumption not an investment.
• Gold ETF invests in physical gold .
• Each unit of gold ETF represents one gram of gold, with the
exception of Quantum Gold ETF where each unit stands for half a gram of gold.
• You should have a demat account for investing in Gold ETF.
• SIP and systematic transfer plans (STP) facility is not available in gold ETFs.
• If you don’t have a demat, choose a gold fund. Gold funds invest in
gold ETFs. But as Gold MF is a fund-of-fund, charges tend to be a
little higher.
• The expenses in a gold MF is capped at 1.5% while in gold ETFs it is 1-1.2%.
• If you decide to sell your gold fund of fund in less than six months, you may end up paying EXIT load.
• Tracking error is another issue here as gold ETF has its own
tracking error and the gold fund of fund may end up adding to the
tracking error. That may increase the gap between the returns to the
investor and returns offered by gold.
• One has to pay short-term capital gain tax for investments in
physical gold for up to three years; however gold MFs attract long-term capital gains after one year.
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