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With its price going through the ceiling, is gold considered a good investment option?
To begin with, the price of gold has come down of late. Mainly because of the US
economy improving but the European economy not stabilising yet. The improvement of the US economy too is temporary as the markets are very volatile. Taking everything into consideration, the market is just okay for investments. People must invest in gold now to get the best return, that's for sure, because it is like a second hedge over fluctuation.
What are the various options in gold investment? There are many ways in investing in gold, depending on your capacity. In India, most people go out and buy gold in the physical form. In abroad, gold is also bought more in ETF forms, where you don't have to keep gold physically and run the risk of a theft and dacoity. When you entrust it with the holders of the ETF, it is easily transferable, spendable and your gold is managed by people, so you make money over the physical gold as well. There are many ways of holding gold. In the form of coins, bars etc. In India, people wear a lot of jewellery, so they buy jewellery naturally. Gold funds are there which is another good option to invest in gold.
How does it have an edge over equities? There are so many advantages. The most important thing about gold is its liquidity factor. Gold is almost transparent like currency. You can take a loan against gold. If you want to grow on gold — gold as a fund, gold as an investment. You can take a good amount of loan, up to 80-85 per cent of its value and at the moment, things are looking bright for gold. Besides, if you see, from 1962 till date, gold has always appreciated. Of course, property has also appreciated. Equity will appreciate if the company is doing good, depending on company to company. There is a lot of chaos as there is so much variation in equity. If a foreign fund comes in, market moves up, and moves down if they withdraw.
People, across the world now have the mindset of saving about one-tenth of their savings in gold. It is like an insurance against a lot of risk, especially country risk as people feel that if America is not doing well, gold will again surge up and currencies will go down. Investing in gold is a hedge against inflation. With ETFs and banks coming forward to hold your gold, it becomes easy for any investor.
What are the checkpoints for someone who plans to invest in gold? The first thing one should keep in mind is that the investor should be a long term one. Don't do any speculation in gold. Invest at a reasonable level, and don't get worried because gold will grow, like any other commodity. Tell me what has come down in the last 50 years.
Even if you have a short term view, as of now, gold may grow but in the long term, your investment is very much secured, apart from the various advantages that I stated. One should not start buying and selling, on a day-to-day basis because for a day investor, it is purely speculation.
For long term investors who are looking for liquidity and no loss in terms of weight, you may buy the gold in the form of 995. If you are buying it in the form of a coin or bar, get it from a reputed jeweller or a bank. They will give you imported gold which comes with a certificate stating its purity, exact weight and other details.
Jewellery has an advantage that you can wear them but you will have to forego a certain percentage as making charges while selling.
What is the best buying and selling time of gold, given the Indian market condition?
At present, there is no restriction as such. The Indian investor is very cautious. At highs, he will never go to buy. He will buy at a low or a stable price, irrespective of months and what time it is. There are different kinds of celebration in every sector of India. Be it the Puja, Onam or Pongal. People buy during those times. Because that buying is beyond investment motive.
It gives him a sense of security and happiness. Only that you should look at the trend. If it is downward, wait for it to start going upward and then buy. Don't wait for any month and year.
How is the market poised to be in the next five years? I have a GMFS study. It tells that in 1950s, there was almost no buying of gold. Then from 1960s to 1990, people bought gold and from 1990 to 2009, there was a selling pressure on gold as there was a better return on equity. From 2009 onwards, they started buying again because the big balloon flattened in America and investors thought that all the big talks about the booming economy was a big lie. During these 20 years, gold went down from $800 to $300 everyone, including the central banks, had started selling gold.
In the last two years, central banks have bought gold. China has bought almost 3 per cent of total gold holding. India too, bought about 400 tonne of gold. There are approximately 1,64,800 tonne of gold available on this earth and out of that 52 per cent is in jewellery. Rest is in other assets and part of it is held by the nations.
Looking at this trend, though it is difficult to predict but it can be safely said that if you are a long term investor, you need to invest in gold for at least five to seven years but five years down the line, the value will almost be one and a half times what it is today, unless the shift is back to equity.
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