The smart recovery in bullion market has again restored the confidence in gold—something that had crashed just four months ago.
Ajeet Kumar/Reema Sharma
Investment in gold has always been a win-win situation. In times of inflation gold acts as a hedge and in times of recession, gold proves to be a safe haven investment.
But due to the continued recovery in gold prices over the last few days the scene has completely changed. The smart recovery in bullion market has again restored the confidence in gold—something that had crashed just four months ago. Though many analysts had predicted that gold price will not bounce back in near term, the resilience in gold price has again proved that its craze in the Indian market will hardly ever die.
Gold price hit fresh all-time high of Rs 35,074 per ten grams in futures trade for the week ending August 28 after seeing a 20-month low of 26,350 per ten grams in the domestic market in mid-April this year.
At the current level what should the aam admi do? Should he invest in gold now or should he wait further? Should he invest in gold jewellery or gold coin or ETF? Many such questions are cropping up in the mind of the common man. Let’s have a look at the options and the impact.
If you have invested in gold (ETF, coin or jewellery, gold futures) there is no need to hurry up for selling. Unless there is an emergency, it is not advisable to sell gold at this point. The rise in the price of gold my move further northwards. Although a small correction in prices cannot be ruled out, the sellers can be sure that gold will hold much better returns in the long term. The yellow metal’s price might see some volatility in near to medium term, but overall gold investment will not disappoint you. So, the seller can sit and wait for the right time and opportunity.
This is not the best time for traditional buyers (for wedding purpose and gift purpose). Though it is advisable to wait a little more and watch the price of gold to come at Rs 30,000 level. You can opt for gold at the current level only if it is compulsory. Investors can put in 10 percent of their total budget in buying gold at the current level and release an additional chunk after some price correction. However, serious investors and first time investors can err on the side of caution. Domestic as well as international factors like rupee depreciation and Fed’s tapering of stimulus might put downward pressure on bullion prices. So, investment in other financial instruments like equity, mutual funds and debt can be thought of as an alternative. Conversely, it is advisable to have one tenth of gold in your total portfolio both for the first time investors as well as the seasoned ones.
The upsurge in price of gold will also affect the third category of persons who neither intend to buy or sell. The current rise in gold price will further increase the burden on our import bill. But it might bring down retail demand. However, government’s recent decision to curb down on gold demand by hiking import duty may prove to be beneficial for the country’s burgeoning current account deficit.