Gold - good time to accumulate

Gold prices present a good opportunity for long-term investors to accumulate the precious metal as its overall outlook remains positive amid the current economic uncertainty.

Gold prices, which had collapsed in the last week of September, have recovered significantly and are now hovering around Rs 27,000 per ten grams. Going forward, fresh buying by stockists and jewellers to meet the ongoing festival demand is likely to further fuel the uptrend



Gold prices present a good opportunity for long-term investors to accumulate the precious metal as its overall outlook remains positive amid the current economic uncertainty.

Gold prices, which had collapsed in the last week of September, have recovered significantly and are now hovering around Rs 27,000 per ten grams. Going forward, fresh buying by stockists and jewellers to meet the ongoing festival demand is likely to further fuel the uptrend.

The precious metal prices had collapsed to a six-and-a-half week's low of Rs 24,992/10g in the last week of September 2011, its sharpest weekly drop since March 2009.

"There is strong opportunity for retail investors at these levels for those who missed out on the previous rally," Religare Securities CEO Gagan Randev said, adding, "investors can start accumulating gold at these important levels, keeping in mind long-term levels of around Rs 32,500/10gm."

As an asset, gold helps in diversifying the portfolio, and is considered a hedge against inflation.

Financial planners recommend allocation of a minimum of 10-20% of one's total net worth in gold as a hedge against inflation or as a safety net in the event of collapse of paper money system.

Retail investors should start buying gold by adopting a staggered approach, which helps to average out the cost while accumulating gold over a period of time, Randev said.

They can accumulate the metal through various options like Gold ETFs and E-Gold, wherein they can put in money on a weekly or monthly basis and can buy as low as 1 unit of paper gold (1 unit equals 1gm).

According to the data by the AMFI (Association of Mutual Funds in India), by the end of August this year, assets of the gold ETFs soared to Rs 7,578 crore, compared with Rs 2,639 crore in the same period last year.

In the current calendar year so far, Gold ETFs have given a return of over 29%, while in the last one year it gave a high return of over 40%.

Assets of Gold ETFs are expected to surge nearly three fold to hit a record of over Rs 10,000 crore by the end of December 2011.

"Mounting worries about major economies slipping back to recession have prompted investors to seek refuge in the safe haven status of the precious metal, sending its prices to near-record levels," Randev said.

India has always been a huge gold consumer, but the yellow metal has climbed up from fifth place in FY08 to become our biggest import after crude.

Besides, according to the unofficial estimates of BBA, gold imports by India could touch or exceed 1,000 tonne in 2011 if the current trend continues, Religare Securities said.

"Gold is likely to remain positive in the coming year amid fears of global economic slowdown, hyper inflation and low interest rate regime.

"With real interest rates across the globe expected to stay low for quite some time, gold prices are likely to remain in positive territory in the near future," Randev added.