INVESTING IN GOLD Looking back, looking forward - By Chintan Karnani
The maturing of Indian gold market
Housewives investing in gold are the next best thing to have happened
for maturing of gold market in India. Indian gold exchange traded fund investment is also on the rise.
I am not going to comment much on why gold prices rise and how long gold prices will rise? When government bonds have a chance to become a bad debt then investors have nowhere to go but to invest in gold and nothing else. Over the years central banks believed that cutting interest rates and flooding the markets with excess money will maintain growth. But with Greece and other eurozone nations this policy has boomeranged. There are other nations which are on the fringe but there names will never come up. Indian gold prices are around INR 18500 per ten grams and are expected to rise to INR 21000+ over the coming months. There can be corrections
to INR 17500 and INR 16500 (per ten grams) but these will be part and parcel of the bull run. Gold prices will be in a short term bear phase when (A) There are secure alternate sources of investment (B) Investor focus switches away from sovereign debt default to something else which in turn will reduce investment demand in Gold ETF and a short term fall in gold prices.
Women and housewives have started investing their small savings in gold. This is something which I have come across this year. In Delhi I came across a group of women who invest in physical gold. They buy physical gold when prices are low from a jeweler and sell gold to the same jeweler when prices rise. The quantity of gold brought is from a few grams to a few hundred grams. This made me a do a small survey from jewelers from different parts of India. There are housewives in different cities which invest in their small savings in gold (hiding it from family members). They know about future prices movement of gold from various television channel and word of mouth. Buying physical gold and selling later is fine and shows that Indian gold investor is maturing. There are some housewives who after investing in physical gold have started switching over to gold futures trading. All this is fine as long as one makes a profit. But there certain precaution which one needs to take care: (A) Do invest for the short term (15 days to 45 days time) as gold prices are also invincible. They can remain in a short term bear phase for two months to three months and then make a biog rise. Just remember that you have physical gold in hand and that profit will be there sooner than later. Patience is needed (B) Always check the purity of gold you buy. Do not trust your jewelers. Always take a certificate on purity of gold or any other documentary evidence. (C) Keep on withdrawing profit on gold investment. (D) For future investment, reduce greed and use trailing stop losses on gold future trading. Just remember that gold can trade the other way than you can remain solvent for a long time.
Housewives investing in gold are the next best thing to have happened for maturing of gold market in India. Indian gold exchange traded fund investment is also on the rise. Association of Mutual Funds in India (Amfi) data shows that the total assets under management of gold ETFs crossed Rs 1,700 crore in April 2010 as compared to Rs 700 crore in April 2009. In April, alone, gold ETFs saw flows of approximately Rs 50 crore. The number of gold exchange traded funds is also on the rise. Higher gold prices have resulted in increased demand for diamond jewellery and lower gold content in jewellery. Investing in diamond is not recommended as there are not clear standards and pricing. Diamond pricing can vary from jeweler to jeweller which is not the case with gold.
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