Gold in India apart from being seen as a traditional and
luxurious good has always been considered as one of the best investment option.
This yellow metal particularly has gained attention and interest in recent
times since the global recession. As our country is facing high inflation and
people are constantly fighting the inflationary pressure, gold seems to be the
best investment option that stands as a hedge against inflation. Over the
years, particularly in the last five years people in India have become
increasingly obsessed with the yellow metal. India is the largest consumer of
gold. Gold has always been considered as a significant commodity since early
age. Before money came into existence, people those days had gold as their
reserve for all the transactions. The evolution of money came from the barter
system and the gold standard system. The barter system is where people
exchanged goods for transaction. With its limitations, then came the gold
standard where gold coins and paper were minted and used for all the
transactions. With its limitations came the currency paper system that we use
today. Many kings valued gold both in terms of monetary and investment. Thus
gold holds a significant importance in history. Today, gold is a long term
store of value for governments and individuals. One cannot forget gold when
talking about the evolution of money.
Gold of all the other precious metals is the most popular
investment choice of the retail investors. What is there in this metal that
lures people? Generally people follow an option that attracts everyone. In this
case the demand for gold has always been high and that is why many are enticed
to invest in this precious metal. The demand for gold is always on the rise
making it more valuable and attractive. This is one of the primary reasons for
the soaring price of the metal. The other is the demand supply mismatch that
causes the price to fluctuate rapidly. The supply of gold in general is limited
as the cost of production is very high and globally gold bullions are limited
resources. Like all the other markets, gold market is also subjected to
speculation and fluctuation. There is a plethora of various investment
platforms and this raises the uncertainty and speculative nature of each
investment option. A good investment should give high return or at least
expected return so that we don’t go in losing our money. The risk associated
with each of these investment options out there varies according to the market
in which they are traded. Out of all these the stock markets namely the Bombay
Stock Exchange (BSE) and the National Stock Exchange (NSE) in India is more
volatile. The stock market is a place where equity shares of companies are
bought and sold by buyers and sellers. In an inflationary situation or the
economy facing a crisis this is the first market that is bound to get affected
greatly because of slower economic growth and capital investment. During
recession bank deposits also don’t give you high returns but moderate assured
returns. In a situation like this gold
investment is better as it yields good profit and value for your money. So a
careful analysis of the market condition and macroeconomic indicators should be
carried out in order to choose and invest in the most rewarding investment
platform. The factors surrounding gold as a best investment option against a
falling economy is not clear for many first time gold buyers.
Gold is more commercial than stocks as gold is easy to buy
and sell. Many countries across the world have gold as reserve as its easily convertible
into cash. Gold investments have become easy now with wide avenues open to
trade the metal. Thanks to internet now buyers and sellers can bargain and
negotiate on gold prices and use it as a platform to promote gold stock. In the
present economic situation with weaker economic growth, persistent high
inflation and financial uncertainty gold is easy to liquidate as well. Even
during recession, gold by many is considered as a fashion statement and thus
increasing the demand and the jewelry business. But once if you consider
investing in gold have the patience and be prepared to wait for good returns
that are viable only in the long run. The more years you hold gold the better
returns you get. Gold can be easily sold in times of emergency. Since gold is
an asset class it is considered as wealth insurance. So unlike other
investments like stocks and real estate, investment in gold does not value
timing. Before deciding on to invest in gold one should know which form of gold
to buy to make it for a better investment because gold can be bought in many ways.
Indians mostly buy gold as jewelry and ornaments but this is not the right
choice for gold as a investment since jewelry
is just a personal belonging for adornment and does not guarantee you assured returns
when sold. So gold like bars and biscuits is a better form of investment than
jewelry as they are in the purest form. Of all, the one that is gaining popular
in recent times is the gold Exchange Traded Funds (ETFs). These are just like
mutual funds held in paper form in your demat account. This form of gold
investment offers better option as it is easy to transact.
The recent drop in the gold prices signaled caution and
speculation across the world shaking investor confidence. Does this signal the
lust for gold is coming to an end? Does gold started losing its shine? What caused
the international gold price to fall suddenly? First, it is not the demand for
gold jewelry but gold investment that spurred the prices of gold to escalate
since 2000. Historically, gold has been the safest investment. The demand for
gold biscuits and ETFs doubled between 2005 and 2012. The main reason for this
increase in demand for gold as an investment is because of the globalization of
world economies. Since the 21st millennium many emerging nations
across the world due to globalization entered into the growth phase that caused
inflation to move higher making investors to buy gold as a hedge against
financial instability. Since 2003 the dollar value has been on decline helping
the gold price to sky rocket. This sharp increase in gold prices attracted
investment funds in search of high yielding assets, fuelling the price
increase. So many investment and hedge fund companies started taking a
leveraged bet on prices through futures trading. Commodity trading seems to be
risky but the most rewardable of all the other investment options. A classic
example was the rise in the crude oil prices in 2008. Data suggests that there
is a strong correlation between prices of gold and crude oil. The continuous surge in the international gold
prices peaked since 2003. However, the international gold prices started
declining gradually since the financial crisis of 2008. Many investment fund managers
and small investors started losing interest in the asset that is declining or
trending sideways. The decrease in the gold price internationally made
investors to doubt the returns of the asset. Evidently, this decrease delivered
very low return of just 5 to 10 percent in 2011 and 2012 compared to high
returns since 2001. Thus many investors and fund managers are parting with the
gold holdings. World gold council data reflects that the investment in gold has
been declining in the past two years. The sudden plunge in the gold prices is
also because of the gloomy situation prevailing in the Eurozone. Cyprus is the
latest to join the league of default in the euro crisis. The banks in Cyprus
were shut down because it went bankrupt of inadequate liquidity. Cyprus
started to pay its debt through its gold reserve that made the gold price to
fall dramatically.
The fall in the prices of gold came as a rude shock to some
of the investors who thought they were playing with the safest bet. The
question that ponders many investors is that whether this fall is permanent?
No, because nothing in the business and investment world can be permanent. And
there are many factors that are still supportive of gold prices. The gold
jewelry business is bound to see profits as the demand for gold jewelry is to
rise with the price decline. Many jewelers say that the fall in the gold price
is just seasonal and temporary and expected to see the value of gold to
increase again by later this year. Inflation continues to be a concern in most
emerging economies like India and the depreciating value of rupee will make many
investors park at least part of their money in gold or gold backed assets. The
government and central banks will also have to continue increase in their gold
holdings against the risk from a weaker dollar and euro. Investors can still
look on gold for investment as it still seems to be an alluring investment
option. Any asset that has trended in only one direction for years is bound to
decline. Seen in this context, the recent decline in the gold price may be
healthy. The banking sector and the stock market globally have become weaker
and are prone to uncertainty prevailing around the global economy. In such a
situation the demand for gold is expected to be strong. Keynes has acknowledged
that “gold has become part of the apparatus of conservatism and is one of the
matters which we cannot expect to see handled without prejudice.” The gold
purchase will be high this month during the Akshaya Tritya as it is believed
that investment made on this day tend to appreciate and continue to grow.
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