Should you still buy Gold?

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Gold has indeed achieved a gold run as an investment instrument. In these uncertain times, gold has outshone all asset classes. There has been an upward year on year growth of 6 percent in terms of dollar. But in Indian rupee terms, gold has rallied well and has gained around 25 percent on a year to year basis. The moot question remains, ‘Should you still buy gold or sell it? Or be a silent watcher of the bullion rush?

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Gold is a dollar denominated product and sharp depreciation of the Indian rupee against the dollar has aided gold investors in 2008. Investment demand for gold increased by 64 percent in 2008 according to World Gold Council and mine production fell by 3 percent. Gold has indications to still go up in the medium to short term.

You should buy gold regularly and annually to strengthen your holdings. If you have children and want to plan your finances well for future, you must have gold as a prominent asset. Time your gold purchases with a festival or your child’s birthday. Include gold in your portfolio if you are saving for retirement, as well. Gold is a hedge against inflation. Even if gold prices dip and book a loss, you should buy annually and accumulate.

If you are a first-timer investing in gold, do this:
•    Have at least 2 to 5 percent of your portfolio in gold
•    Purchase gold every year to plan for your child’s future
•    Avoid buying gold in jewelry form if you are investing in gold. Buy gold bars or gold coins from a reputed jewler, rather than banks, because they charge premium. Also Reserve bank does not allow banks to buy back gold but you can easily take the gold back to the jeweler and he can convert it into jewelry or cash.
•    Go for gold either in physical form like coins or bars. You can also buy gold in paper form like ETFs.

If you are an investor with gold already in your portfolio, then do this:
•    Keep adding gold to your portfolio, till it constitutes 5 percent of it, so that it can act as a hedge in uncertain times
•    If you have surplus cash, invest up to 10 percent in gold
•    You can take a loan on gold, if you are strapped for cash in emergency or if you are laid-off. The rate of interest on loans taken on gold is between 12. 5 percent to 13.75 percent per annum while personal loans charge 16 to 22 percent per annum, depending on your credit profile.   You can borrow between Rs.10,000 and Rs. 5 lakhs by pledging your gold. Your loan amount can be up to 90 percent of the worth of the gold. The tenure of loans on gold can be anywhere between one month and two years.
•    Liquidate some of your gold, if it forms more than 10 percent of your existing portfolio.
•    You can use the proceeds of the sale to investing in equities which come at cheaper prices with long term horizon. You can also use the sale proceeds to repay loans.

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Posted by Starwin on 12th April, 2009

Should you still buy Gold?

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