GOLD has seen a steady crash in prices for the past couple of days. The fall was catalysted with news that Cyprus's central bank would sell its gold holdings. If that happens, it might trigger another countries in Europe also following the bandwagon. Currently US holds biggest Gold Reserves of approx 8,100 tonnes. What would happen if US decides to offload it's reserves.
Now, crucial question is, what an investor should do in such a scenario? Gold, as an asset class has always been considered as a hedge against inflation. Thus, also there should be a certain specific allocation made into Gold.
Basic points to consider while investing in GOLD:
1. Percent Allocation: Of the total investment corpus, allocate only 10% to GOLD.
2. Time Of Purchase: Buy at dips spread over a year, or if not sure of the timing invest using SIPs. Generally, Feb-Apr is the lean season and post which gold sees price rise.
3. Method Of Buying: Gone are the days when one would buy gold from Jewellers, banks for purely investment purpose. Now, state of art distribution channels are available for the clients to invest. NSEL enables investor to buy precious metals, such as e-Gold, e-Silver, etc on the DEMAT/TRADING Platform. On NSEL Spot, and investor can also take the delivery of the same, or even sell it. The best part remains that the holdings are in dematerislised form, and hence very low maintenance costs for the client, and at good price. A client can buy/sell online and even on recorded telephone lines. Contract notes are sent to the client via email or couries (as preferred). Also, the client can acess his Gold investments via an online access. Another option available is to invest in GOLD ETF (Exchange Traded Fund). This fund tracks Gold prices and hence returns closely follow that of gold. But, the delivery of gold by investing in these is not an option available to teh client. Third option is to invest in a product that would enable client to invest in Gold on daily basis; and on the date of maturity client has to take the delivery of the same. In this case, client has no other option but to take delivery upon maturity.
Fact to keep in mind:
Last couple of years have seen very good returns on the gold investment's. This had been predominantly on account of weak global markets and weaker currencies, which led corporates and central banks across the world invest in gold. With global markets showing signs of improvement, slowing emand of Gold in China and Cyprus's central bank's decision regarding selling of Gold reserves led to the crash in GOld prices.
What Should be guiding principles:
1. A investor should keep in mind that investing in Gold should be within allocation limits.
2. Investment horizon shold be long term. Short term investment could be counter productive.
3. Select best distribution channel for buying gold.
However, it is recomended that an investor should always have a financial plan made for his investments and undertake his investments according to the plan. This prevents an investor from falling prey to sentiments while investing. Also, tracking of investments and benchmarking of the same is also as important as investing.
Research Team
researchteam@cogentadvisory.com
Queens, New York, U.S.A London, U.K. New Delhi, India.
+1 (718) 713 8269 +44 (20) 3393 4285 +91 87 4402 2020
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Disclaimer:
The article is purely for informative purpose and hence not a solicitation for business/investment. It is not a investment advice. Kindly, refer your financial planner/adviser before taking any action. Neither Cogent Advisory, nor its employees or affiliate partners would be responsible for the any loss on account of investments undertaken by investors based on the information contained in this article.
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