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The gold crash- what should be your action plan?


Gold Bar and Investment Jewelry

 

 

Gold is perceived to be an asset class which is dependable, acts as a hedge to the portfolio and whose value appreciates steadily over time to give the investor decent stable returns. This was supported by the historical data- Gold prices per 10 gms steadily rose from  Rs. 1800 in 1981, Rs. 2500 in 1984, Rs. 3200 in 1990, Rs. 5000 in 1996, Rs.7000 in 2005, Rs. 12000 in 2008, Rs, 18000 in 2010, and Rs 26000 in 2011 before touching an all time high of over Rs. 32000 in November 2012.

All this changed in 2013.Gold prices started to decline, and today it is priced at around Rs 25500 per 10 gms – a 20 % dip from the all time high. This has evoked mixed reactions from the investors. Those who have a significant exposure are unhappy with the reduced value of their portfolio. Those who have to buy gold are happy with this fall. So, what should be the action plan of people in such a scenario?

  • If you have a sizeable exposure to gold in your portfolio-

For those who have invested in gold via SIPs or lump sum investments in gold ETF and gold forms a significant chunk of their portfolio,  they are likely to have made a profit so far, given the past rally. It would be advisable to book part profits now, so as to prevent the profits from getting minimized or nullified due to further reduction in prices. Those holding SIPs should not worry much, since SIPs work on the rupee averaging concept. Hence during times like these, the investor is by default buying low, and accumulating more gold units at the same price.

  • If you want to buy gold –

For someone who just realized the significance of including gold in his or her portfolio and plan to start investing, again SIPs are the best route. And for those who want to buy jewellery for occasions like festivals or family weddings, such purchases cannot be timed.  Do any of us – women ever think of selling our jewellery and making a profit when gold prices are high? No. Using the same logic, one cannot wait for the gold prices to hit an all time low to buy too!

Most researchers and analysts are of the view that since gold has seen an uptrend for the last so  many years, it is now headed for a correction, and there is likely to be a further decline in prices. But, in the long run, it is the fundamentals that will rule.

 

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One response

  1. Dr M.Chandrashekhar | Reply

    Well written. So many conflicting views are being given by experts about gold. I prefer to have a small exposure to Gold in my portfolio.

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