Mumbai: Gold has got its mojo back. With rising oil prices amid political turmoil in parts of the Middle East, investors are again looking at gold as a safe haven. Gold touched an all time intra-day high of Rs20,970 per 10g on 24 February on the Multi Commodity Exchange (MCX).
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Since 1 February, gold prices have gone up by 5% and breached its previous high. According to MCX data, gold prices as on 3 March stood at Rs20,930 per 10g compared with Rs19,920 on 31 January.
In the last one year, gold has given a return of 25% outpacing the Bombay Stock Exchange’s Sensex, which gained 8.76%.
In the international market too, prices have moved in similar direction. On the London Metal Exchange, gold price as on 2 March was $1,432.70 per ounce compared with $1,327.00 on 31 January, an increase of around 7%.
Should you invest?
Experts believe that gold prices are set to head north for some time now.
Says Ajay Mitra, managing director-India and Middle East, World Gold Council, “It is no surprise that gold prices are shooting up. During uncertain times, gold prices tend to go up as investors consider gold as safe haven. Even central banks across the globe latch onto gold during uncertain times.”
Adds Anil Rego, chief executive officer, Right Horizons, a Bangalore-based financial planning firm, “There could be short-term volatility but for the next four-five years, the prices will harden as demand for gold is likely to increase significantly. Gold is now considered as an alternative for government papers. Rather than investing in US treasury, various government (central banks) are now contemplating to invest in gold and that would firm up the prices.”
As part of foreign exchange reserve management, the Reserve Bank of India, too, purchased 200 tonnes of gold valued at Rs31,490 crore from the International Monetary Fund under its limited gold sales programme back in October 2009.
“The trend of the last few years suggests that price of gold may go up by 22-25% in the current year. Even in the short term, prices are likely to remain firm till the time crisis in oil producing countries such as Libya subside. Hence, investors should continue to invest in gold. If someone invests systematically irrespective of the price level, he will make profits in the long term,” Mitra said.
Swati Kulkarni, fund manager, UTI Asset Management Co. Ltd, says, “Amid geopolitical tension, gold is likely to perform well at least in the short run and one can continue to invest in it.”
Not everyone is gung-ho about the recent developments. Sanjeev Shah, executive director, Benchmark Asset Management Co. Ltd differs, “No one can predict prices—it may go up, it may even fall. We believe that investors, having less than 10% of their portfolio in gold, should invest in gold or related instruments irrespective of the price. Those having more than 15% of their portfolio in gold should look at other asset.”
Also, the finance minister in his budget proposal for 2011-12 has announced levying central excise duty of 1% on jewellery and articles made of gold, silver and other precious metal provided it is sold under a brand name.
However, when asked about the impact that the recent budget proposal will have on gold prices, Mitra said, “Since, the tax is very low, the impact too would be marginal.”
Given the current run-up in prices and the current scenario, we believe the yellow metal will keep shining for a while. Also, if you don’t want to buy physical gold, take the exchange-traded fund route.
Graphic by Sandeep Bhatnagar/Mint