The yellow metal is a good avenue now for short-term investors
Every time equity and other markets turn bearish, investors turn to the yellow metal to park funds. It has been no different this time as gold has turned the new safe haven for many. As would happen in every boom market, investors chase an instrument even if it is on the rise on a continuous basis. In fact, it has happened with various other instruments like equity, property, crude oil, and it seems to be the turn of gold which has been scaling a new peak at regular intervals. Expectedly, new highs are being projected for the yellow metal.
Needless to say, investors need to be slightly cautious with their investment strategies as it is easy to get carried away by the current environment. While gold is definitely an option for the next 12-24 months, the instrument too carries its baggage of risks at the current levels. More importantly, rather than demand, other factors such as growing comfort of investors and increasing interest in the metal from speculators, have been pushing the price of gold like with many other instruments.
In the current environment, it is worth taking a closer look at the demand scene. Many would have noticed that there has been a clear shift in demand as domestic buyers are not rushing to buy the metal for jewellery because of the rapid rise in prices. Despite the wedding season, jewellers complain that sales have been muted. On the other hand, investors have been flocking to the metal as an investment option and the allocation in favour of the metal has been on the rise. In fact, gold has been the most preferred product after debt in the last six months.
Going forward, many believe that gold would continue to account for larger allocations not just for individual investors but also for institutional investors as there would be a gradual shift from currency to yellow metal across the globe. That would also mean increased volatility and large scale selling pressures when other alternate options turn attractive. Hence, investors need to be cautious with their tenure of investment and should monitor the price movement carefully.
For the short to medium term investors, gold definitely looks an attractive option and can be equated with some of the debt options such as income funds. The dilemma for many is whether to choose an ETF (exchange-traded fund) or a gold fund which also invests in other metals and mining companies. Despite the sharp run-up in gold prices, the performance of gold funds has been below that of ETF and hence at this point ETF looks a better option than gold fund, particularly for short-term investors. In the long run, however, you can allocate a portion of your corpus for gold funds as they have the potential for a good performance in a good economic environment. More importantly, it would be prudent for investors to stagger their investments, either selling or buying, as gold looks good in the current environment.
Every time equity and other markets turn bearish, investors turn to the yellow metal to park funds. It has been no different this time as gold has turned the new safe haven for many. As would happen in every boom market, investors chase an instrument even if it is on the rise on a continuous basis. In fact, it has happened with various other instruments like equity, property, crude oil, and it seems to be the turn of gold which has been scaling a new peak at regular intervals. Expectedly, new highs are being projected for the yellow metal.
Needless to say, investors need to be slightly cautious with their investment strategies as it is easy to get carried away by the current environment. While gold is definitely an option for the next 12-24 months, the instrument too carries its baggage of risks at the current levels. More importantly, rather than demand, other factors such as growing comfort of investors and increasing interest in the metal from speculators, have been pushing the price of gold like with many other instruments.
In the current environment, it is worth taking a closer look at the demand scene. Many would have noticed that there has been a clear shift in demand as domestic buyers are not rushing to buy the metal for jewellery because of the rapid rise in prices. Despite the wedding season, jewellers complain that sales have been muted. On the other hand, investors have been flocking to the metal as an investment option and the allocation in favour of the metal has been on the rise. In fact, gold has been the most preferred product after debt in the last six months.
Going forward, many believe that gold would continue to account for larger allocations not just for individual investors but also for institutional investors as there would be a gradual shift from currency to yellow metal across the globe. That would also mean increased volatility and large scale selling pressures when other alternate options turn attractive. Hence, investors need to be cautious with their tenure of investment and should monitor the price movement carefully.
For the short to medium term investors, gold definitely looks an attractive option and can be equated with some of the debt options such as income funds. The dilemma for many is whether to choose an ETF (exchange-traded fund) or a gold fund which also invests in other metals and mining companies. Despite the sharp run-up in gold prices, the performance of gold funds has been below that of ETF and hence at this point ETF looks a better option than gold fund, particularly for short-term investors. In the long run, however, you can allocate a portion of your corpus for gold funds as they have the potential for a good performance in a good economic environment. More importantly, it would be prudent for investors to stagger their investments, either selling or buying, as gold looks good in the current environment.
