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All That Shines Is Gold

| 10/11/2010 3:20 PM Monday

From time immemorial gold has remained the most cherished investment option for investors across the world. Coming to the Indian perspective, gold jewellery has got an emotional attachment with Indians as a large percentage of Indian families use gold as an exchange gift during marriages and child birth as a gesture of overwhelming love and affection. The domestic jewellery market consists almost 80 per cent of gold jewellery. The main driver being the investment factor, those from the middle-class and high net worth individuals (HNIs) buy gold as a form of security.

At present the markets across the globe are witnessing a bullish trend and with this bullishness many big investor gurus have become or taken a cautious stance. They have started to look out for alternate investment horizons as they believe that investing in equities may have become a bit riskier. Gold, which has been on the minds of the investor fraternity, has started sparkling and is trading at an almost all-time high. In the last few years since the global meltdown in 2008 this metal has seen good northward movement. It should be a strategy for every investor that they diversify their portfolio in such a manner that a certain part of the investment goes to safe havens. It is always a better strategy to invest around 5 – 10 per cent of your funds in gold.

Moreover, in the recent past we have seen the USD weakening against all the major currencies across the world and this has sent a shiver of fright in investors who have parked their funds in USD denominated assets as the values may depreciate going forward. In fact, none of the other currencies across the globe provide the kind of comfort level which could act as an alternate option. That is why there has been an increased interest in gold which is clearly visible as it has witnessed 31 per cent appreciation in its prices in the last 12 months.

Now the question is that if you want to park some of your funds in gold then which are the options that you should look forward for? We find that instances of dubious investment-related services and products are growing at an alarming rate. The best form to hold gold, from an investment perspective, is probably gold bars (termed ‘biscuits’). Gold bars are standardised products whose purity is assured by the hallmark (seal of the producer) that it carries. There are no making charges involved and as the purity and quantity is assured, on liquidation you do not have any surprises in store for you. As an individual with limited knowledge about a product like gold you probably are not geared to ask the ‘right’ questions while purchasing gold.

Another option is to buy gold coins which are available at all leading banks and with renowned gold retailers like Tanishq, Reliance Jewellery, etc. Another option that comes to our mind is Gold Exchange Traded Funds (ETF) and direct purchase through commodity exchanges. Gold ETFs are funds that passively track the performance of the gold bullion. These funds buy gold with investors’ money (on the behalf of investors) and convert it into units. The units of Gold ETFs can be bought or sold on the stock exchange, just like the shares of companies.

 

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