Wednesday, September 14, 2011

Gold Gold Gold!!



Gold is close to $1825 per ounce. And those in the know say there is more steam left.  Infact gold now a days is behaving like equity, notching up gains of over Rs.1000 per day. Yes, gold has become the new equity. But how many of us can today afford to buy physical gold? Unless it’s a marriage or some such necessity, can we bring ourselves to buy gold now? 

Clearly huge speculation at play, with many taking long positions, keeping an eye on the global uncertainties. Many are blaming the current run up in the gold prices because of the Euro Zone.

But more than Euro zone, today, it is the weak rupee which is laying up the gold prices further. The rupee determines the landed cost of the dollar-quoted yellow metal and hence when the rupee is weak, the cost is higher. Today morning, rupee hit a 2 yr low, it depreciated by 39 paise at Rs 48.01. 

When such a bull run hits the equity markets, we usually book profits, not knowing when you might see the next such high. But then why aren't people selling gold at these highs? News is that scrap sale of gold, which is basically family jewellery is down 50-60%. Only those short of cash were selling with many opting to raise money by mortgaging gold. People are not selling gold as they feel there is a lot more upside left in the yellow metal. People are not looking at the current price but are more driven by what the price could be. 
So how much more steam is left in gold? Will the prices crash, like many predicting a bubble? The word on the street is that even if the news of the crisis dissipating in Europe comes in, gold could come down by around $100-200 but not a crash. By the end of the year, even on a conservative basis, the current target is placed at $2000/ounce and this means, may be Rs 30,000/10 gms in India? Phew.! 

More than looking good, this new found shine of gold is scary. Even today's price of Rs 28000 and above seems preposterous to say the least. Even if on the long term, analyst are bullish, the current feeling is of acute nervousness. Saying the current price is way ahead of its fundamentals is indeed putting it too mildly. Valuations are crazy. 

Thus in the current scenario what would be the sane thing to do? Like stocks, best to book partial profits and make at least part of the holdings 'free'. If you have bought at much lower levels and are sitting on profits of over 50%, best to book partial profits. You can use the profits to buy some frontline stocks, which are at very attractive valuations.  

And if the question is whether one should buy gold or ETF a.k.a Exchange Traded Funds, then it depends purely on your ability to invest on a regular basis. Yes, gold ETFs are much cheaper but gold funds are more efficient when it comes to SIP. While selecting a gold ETF, go for those with the lowest expense as it will leave you that much more on the table. And keep a watch on the liquidity aspect too, which you can get from the gold ETF volumes on the NSE. GoldBees remains the number one. 

Food for thought:-  Remember, investing in gold ETF cannot be a substitute for physical gold, it would be just another form.

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