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The Gilt Edge

The glitter is back in gold. After peaking in May 2006, when the international gold price touched $725 (Rs 32,625) per ounce, prices tumbled below $600 (Rs 27,000) levels in June 2006.

By Clifford Alvares | Print Edition: October 7, 2007

The glitter is back in gold. After peaking in May 2006, when the international gold price touched $725 (Rs 32,625) per ounce, prices tumbled below $600 (Rs 27,000) levels in June 2006. Since then, the gold price movement has been patchy and sideways.

But lately, international gold prices have started firming up—it’s over the $700 (Rs 28,700) level and is currently ruling at $706 (Rs 28,946). And going by the signs in the international market, gold appears set for golden times.

The reasons are many. Gold has been a classic hedge in the international market against the US dollar. With the dollar weakening and with growth slowing down in the US, investors are flocking back to gold.

Glittering Gold
Glittering Gold
 

Besides, the recently gold exchange traded funds has also Sandesh Kirkire, CEO, Kotak Mutual Fund, which recently launched the Kotak Gold ETF: “I believe when the reserve currency of the world is under pressure, the next asset to invest in is gold.” Oil has increased to an all-time high and is currently trading at $77.7 (Rs 3,185.7) adding further uncertainty in the market.

t such times, investors fall back on the traditional yellow metal. Says Tejas Parekh, Senior Research Analyst, Motilal Oswal Commodities: “I am bullish on gold. There are many triggers—the dollar’s weakness, firm crude oil prices—so I see gold prices rising up to $735 (Rs 30,135) in the short term.”

On the other hand, international gold supply has been tight with geopolitical and practical difficulties in mining gold. Miners usually hedge their position, but this year, there as been a record de-hedging. Says Parekh: “Producers have dehedged their investments on expectations of a better price.”

Investing in gold has other benefits, too. It does not move in tandem with the equity or debt markets and, hence, it provides an attractive diversification for investors.

Besides, gold is extremely liquid, is internationally acceptable and it does not require active management. Gold also does not see-saw wildly like the volatile stock market and, therefore, helps reduce the overall volatility of any individual portfolio.

Ever since gold ETFs were introduced in February 2007, they have made it easier to buy gold and investors can make direct market purchases from the stock market.

The funds have increased to a size of about Rs 300 crore and Kirkire feels it will increase as “India is the largest consumer of gold and with an ETF, one gets the highest purity of gold without the issue of custody.” With such positive cues, investors can put about 5 per cent of their funds in either gold ETFs or bars to add some shine to their portfolios.

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