Should you buy gold now?

Though the metal is rebounding in international markets, further gains could be limited

Lately, gold prices have seen a correction — the metal has fallen 31 per cent from its all-time high of $1,921 in September 2011. In India, the price stands at Rs 26,885/10g, down 20 per cent from the high of Rs 32,500/10g recorded in November 2012. While gold prices fell substantially globally, in rupee terms, the fall stood at 20 per cent, as the rupee depreciated by about 10 per cent against the dollar since January.

Still, gold has been on the rebound globally, standing at $1,317, about 10 per cent higher than the low of $1,200 in June. This poses an important question---should investors buy gold now?

Experts say prices would stabilise. So, at the moment, investors should avoid being too aggressive on gold, as the commodity is still seeing pressure. Rajesh Iyer, head (investments and family office), Kotak Wealth Management, says investors should be prepared for a 10 per cent fall in prices and when prices start recovering, the gains might not be substantial. “The risk-taking ability has returned among investors. In the US, there are signs of a recovery, while in Europe, the situation has stabilised. It is unlikely that gold would return to $1,900 levels. It may stabilise at $1,300-1,400 levels. As long as it accounts for 5-10 per cent of your portfolio, the impact wouldn’t be much if prices fall,” Iyer adds.

 

Reena Rohit, chief manager (non-agri commodities & currencies), Angel Broking, says while gold prices would be stable at current levels, high appreciation seems unlikely. “Prices will stabilise due to statements by the US Federal Reserve. But these would remain volatile. Investors will not be able to make quick gains in the short term, say six months. The sentiment does not look very positive,” she adds.

Those seeking to buy physical gold for purposes such as marriage, etc, should do so before the festive season, when higher demand tends to result in a price rise. The supply of gold in India is tight and the high import duty could raise prices further.

 

For those looking to invest in gold, experts recommend a go-slow mode. They add major investments in gold should be avoided, as the commodity isn’t expected to appreciate significantly. Investment in gold is useful from an asset-diversification point of view, but one should not consider it for a goal less than five years ahead, says Sumeet Vaid, chief executive of Ffreedom Financial Planners. “Asset allocation cannot be done based on how much the asset has returned in the past. It has to be based on future trends,” he adds.

If gold accounts for more than five per cent of your overall portfolio, experts recommend avoiding gold for now. Most investors already have a substantial portion of physical gold at home. If you don’t have any, buy small quantities through paper assets such as exchange-traded funds (ETFs) and fund of funds. Though the cost is lower in the case of ETFs, you need a demat account to invest in these. However, for the fund-of-funds route, you don’t need a demat account; till your target allocation is complete, you could invest through a systematic invest plan.

 

Paper gold can be converted into physical assets or switched to buy physical gold. “The risk of holding gold in India is low, as it is an investment asset that can become a consumption asset quickly. Even if you have gold ETFs, you could convert these into physical gold,” says Vaid.