Indians have been known for their gold investments, especially around festive time like Diwali or the Akshay Tritiya which just passed. With gold prices continuing its downward journey and prices falling as much as 10% in last one year, the important question is it a worthwhile buy right now? It is considered to be financially prudent to buy when the prices are lower and sell on higher prices. However inflation being such a strong catalyst impacting gold prices, gauging the possible return at least over the medium term is absolutely necessary before you commit any cash to the yellow metal. For example if you bought gold last Akshaya Tritiya, you already lost over 10% on your investment in a year.
In the recent past gold prices have peaked out in 2012, around the Rs 33,000/10 gm mark. Since then though the prices have found support at $1200/oz after slipping to 4-year low of $1130. But perhaps the bottom is not in place yet. Gold prices are closely linked with the gold crude prices and the overall inflation outlook. As a result any significant uptick in the prices is directly proportional to these two aspects. Another crucial aspect is the international linkage. The US Fed policy, the employment levels in US and the interest rate outlook all have a strong bearing on where the prices are headed going forward. This is primarily because global gold prices are denominated in dollar terms. Any potential rate hike in US could immediately lead to prices crumbling like a pack of cards.
So then the question remains what should you do? Experts say that cash is still king but even if you make investment in gold, the jewellery route will be the least effective in terms of return on investment. However the Indian Govt has announced several measures to boost gold investment like low interest sovereign bonds, the Gold Monetisation scheme and many such. These no doubt would be more profitable compared to ETFs or even jewelleries.
However given the global uncertainty, perhaps it is best to commit only a portion of your net investment kitty into gold at the current moment. The expectation is the long-term return profile may see significant improvement as more clarity emerges on the stance taken by the US Central Bank.