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Glitter is back

High gold prices might be a dampener for festive season shoppers, but for gold investors, it brings plenty of cheer. As investors hedge against the greenback, the outlook for gold is good.

Print Edition: October 19, 2008

High gold prices might be a dampener for festive season shoppers, but for gold investors, it brings plenty of cheer. The rally in gold prices since November 2007 saw the yellow metal surge to a high of Rs 13,842 (per 10 gram) on July 15, 2008 in the domestic market. Not many investors took it seriously then and dismissed it as the handiwork of speculators. Sure enough, gold prices dipped to Rs 11,110 (per 10 gram) on September 11, 2008. But last fortnight, gold rebounded with a vigour never seen before. The price of the yellow metal shot up by an astounding $85 (Rs 3,910) per ounce in just one day, the highest one-day rise in 28 years in the international markets. The domestic market, too, mirrored the international sentiment as gold prices jumped by Rs 1,265 (per 10 gm) the same day. Currently, gold prices are hovering at above Rs 13,000.

Investors are increasingly warming up to gold and have started accepting the yellow metal’s capacity to deliver returns as an alternative asset class. Many are looking at gold as a store of value and not just as a hedge against a depreciating US dollar or the general weakening economic scenario. Even when gold prices were correcting in the post-July period, some long-term investors were accumulating the precious metal. At that time, financial uncertainties started rubbing off on Europe, which resulted in the dollar rising against the euro. Besides, crude oil prices corrected from its high of $147 (Rs 6,762) per barrel in the international markets, and gold, too, followed suit. Says Naveen Mathur, Head (Commodities), Angel Commodities: “A rising dollar and declining crude prices gave the Indian buyers of jewellery a breather. Gold will be rangebound for now and no major rally is likely to take place in the near future.”

For small investors looking to invest in gold, gold exchange traded funds (ETFs) are an easy option. ETFs hold the gold for you and issue you units that are credited into your demat account, doing away with the hassle of keeping your gold assets safe. Devendra Nevgi, CEO, Quantum Asset Management, who manages a gold ETF, Quantum Gold ETF, says that gold will continue to do well in future.

“Investment banks have made huge financial losses; there’s uncertainty in the global market; and crude prices are rising again. Besides, inflation is not under control and no new mining activities are taking place for gold. All this will continue to drive gold prices upward. Gold also works as a ‘portfolio insurance’ against stocks and instruments such as ETFs,” he says.

Nitya Varadarajan

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