Gold is good investment in the present depressed market
This Akshaya Tritiya even though it was claimed that there was a 15% increase in gold sales the price of 10 gram of gold fell by ` 100 to ` 26,100. And as opposed to buying gold bars and coins, purchases were centered around jewellery.
Gold has during the last score of years moved exponentially. In 1990, the price of 10 gm was ` 3,200. By 2000, the price had risen to ` 4,400. The ascent then took place. In 2005 it was ` 7,000 but after the global depression of 2008, it doubled to ` 14,500 in 2009, `. 26,400 in 2011 and hit a high of ` 34,900 in 2013. Gold then was the flavour, and gold schemes floated by mutual funds were very popular.
About three years ago Sriram was coaxed to buy into a gold denominated mutual fund scheme. Last week, when he checked his holding, he was distraught to find that the value of his investment had fallen and that he was actually holding a loss.
As a vehicle of investment, gold is no longer seen as lucrative as other instruments. During the last 12 months the value of gold has fallen about 10%. On the other hand, the stock market index has risen 10%, real estate 9.70%, bank deposits 9% and post office savings 8.8%.
This fall in grace is on account of the fall in inflation, and the fact that there has been optimism in the economy. Even though India is still the world’s second largest importer of gold and largest consumer, has gold lost its glitter? Should one invest in gold?
At present, India is buying more gold (42% more) at a time when the other large importer China’s imports fell by nearly 40%. Why?
The demand during the quarter to September 2014 for gold jewellery rose 60% even though investment demand fell 10% on account of softening prices and a weak price outlook. This trend continues. Another reason is that last year some import norms such as permitting star trading houses to import gold were eased.
Additionally, softening of gold prices in rupee terms helped consumer sentiment. Furthermore, during marriage seasons and on festivals the demand for gold grows.
At this time should you as an investor purchase gold?
Gold is a safe-haven investment. It is a hedge against troubled times and that is its intrinsic value. In addition its value for the Indian would never diminish. The stock market has been in tumultuous times. There have been large falls and one should be a little cautious.
Companies have not been doing as well as anticipated. Take the case of Infosys. Its quarterly profit of ` 3,992 crore fell short of market expectations and the price fell by 6% in spite of the company declaring a one for one bonus and a 50% dividend.
The US dollar currently at ` 63.56 has been strengthening in recent months making imports dearer. Foreign investors are no longer as gung-ho about India as they were when the Modi government came into power. There are several concerns regarding India as an investment destination, and there does not seem to a clear marked upward growth in the economy. The acche din envisaged have not come and as things stand one wonders when it would actually come.
In this scenario, I believe that with the present depressed market, gold is a good investment to make. One should aim to have initially about 4% to 5% of one’s portfolio invested in gold. Gold should be used in portfolios to protect purchasing power, reduce portfolio volatility and minimise periods of market shock. It can also be used as a high-quality liquid asset to be used when selling other assets would result in a loss.
I do not even rule out the need to increase this as the days unfold because I am concerned about the economy and how we are moving forward.