There are four reasons to buy gold today. One, a downtrend in stocks gives us the mind-space to look beyond them and consider the role of a third asset in our portfolio to bring down risk at the same level of return or increase return at the same level of risk.

In a market throwing back three to four bucks for every rupee you threw at it, a product that gave below-equity returns was not very exciting. But now that our stock portfolio looks to be in trouble, we may be more open to a stable option that is not so volatile and risky.

Gold is on a rush globally for a variety of reasons, and even as the price nears $1,000 for an ounce of gold, analysts are confident that long-term returns of gold would be positive.

Which way will gold go? Declining fortunes of the dollar make gold a steady store of value. expect it to go up for a while

We'll break the story into four parts. First, what are the demand and supply factors that are driving the price of gold up and whether they sustain over the next few years? Second, we address the question: should you buy gold now? Third, how much gold should there be in your portfolio? And four, how can you buy and keep this gold cheaply and in a tax-friendly manner.

Demand over supply makes gold a good buy

Understanding the dynamics in the bullion market is easy and difficult. The easy argument is that it is a simple economic theory of demand and supply. The complexity is that the various factors that influence demand and supply of gold are themselves dynamic.

The basic fact is that gold prices are going through the roof because of high demand and stable-to-low supply. What could be complicated about that? Let's find out. Demand first.

Photographs: Deshakalyan Chowdhury/AFP/Getty Images

Image: A craftsman heats a bangle at a jewellery manufacturing unit in Kolkata

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