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As we head into 2008, it is with even greater worries about global instability - both political and financial. Iran's potential nuclear arsenal, a near certain US recession, continued fallout from the sub-prime crisis, all point to one direction as far as your investment portfolio is concerned - load up on gold.
Touching new highs. Other than a small blip in the first quarter of next year, gold prices are expected to continue on their bullish path. Currently, gold is trading in the range of $785-795 per ounce.
T Gnanasekar, director, Commtrendz says: "Typically, when the dollar weakens, gold prices go up, and vice-versa. At the moment, the dollar is strengthening and is expected to strengthen further in the first quarter. This will result in falling prices of gold. So, gold prices could come down to $745, even $700 per ounce, in the first quarter of the year. Subsequently, however, our target price for gold in 2008 is $900 per ounce."
Gold prices hit a 28-year high of $845 on November 7, 2007, when the dollar fell to record lows against major currencies and oil prices rose to all-time record levels. But the metal has lost nearly 6 per cent of its value since then as the dollar rebounds, oil prices trend off record highs and players square positions at beginning of 2008.
Invest in a gold fund, not jewellery. Week to week trends notwithstanding, gold continues to remain a solid bet for the future. In fact, with more and more asset management companies offering gold exchange traded funds, a good way to invest in the yellow metal is in the form of paper, that is, through gold funds.
These funds can easily be bought and sold and there would be no problems in liquidating your gold investments. Also, as the underlying gold of your fund is in the form of bullion, there are no losses in terms of design and making charges.
Traditionally, especially in India, investments in gold are in the form of jewellery and you face a significant loss of value when you sell your gold as a lot of your purchase price goes towards design and making charges.
"People are buying gold anyway in India, and buying this in the form of a fund is a far wiser investment than buying jewellery," says Sanjiv Shah, executive director, Benchmark Mutual Fund. Asset allocation is critical, and given the correlation of returns from other assets, it is appropriate that an investor hedges by investing in gold, feels Shah. "Returns on the metal have been fantastic in the last five years.
Ideally, 5-10 per cent of your portfolio must be diversified and gold is a good option," he says. If you are buying gold purely as an investment, then the storage argument is a strong one to prefer a gold ETF over buying the metal in its physical form.
Bars and coins are also good options. The other popular way of investing in gold is by buying gold bars. Earlier, gold bars were only available in jewellery shops, but now they are available at banks.
Though private players such as ICICI Bank [Get Quote] and HDFC Bank [Get Quote] were the first to begin retailing gold, now even public sector giants have got on the gold bandwagon. State Bank of India [Get Quote] recently started selling gold, and currently offers this facility in 100 of its branches. It will see a significant expansion in the next two years.
However, do remember that if you buy gold bars from banks, they can only be sold at jewellery shops. The Reserve Bank of India does not allow banks to buy gold back from its customers.
A little gold in your portfolio can go a long way in keeping your investments buoyant. And now, with multiple ways of buying our favourite metal, there's no stopping the shimmer and the shine this New Year.
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