January 30 , 2013
As an asset gold is a must-have for every individual's investment portfolio. You cannot avoid gold if you want your investments to give returns staying above inflation levels in the long term. Gold prices have stayed over it in the past.
The most significant boom in gold price was in 1980 when it doubled from $ 400 levels to $ 800 in a single month before plummeting down to $350-400 levels again and staying there for many years. After this it kept going up steadily to reach $ 480 levels by 2006. The next significant series of hikes started during the global economic turmoil period beginning year 2008 and now in 2012 we stand at $ 1700 levels.
You can expect to gold prices to appreciate more than all other assets during periods of economic strain since investors consider gold as safe haven. When things improve the money moves from gold to productive assets like equities and debt making gold prices to get corrected. The net effect keeps gold prices just a little over inflation in the long term of 10-15 years or so.
So without getting into the argument of whether gold price will rise significantly from here, we suggest that you maintain a disciplined approach to accumulating gold in your investment kitty. Do not try to speculate and time the markets.
Periodically buy small quantities of gold to add to your portfolio and make its weight not more than 10% of the total weight of your portfolio. This obviously cannot be achieved through physical gold since at the moment 10 grams cost around Rs 30,000. You can do this by either subscribing to a gold mutual fund through SIP option or investing in gold ETF. SIPs give cost averaging benefit. This ensures when prices are high you automatically buy fewer units and when they are low you buy more units.
If you need to buy physical gold for jewelry it is advisable to spread the purchase over a couple of months since prices appear to be very volatile at the moment. Avoid buying it during peak seasons and festivals like Dhanteras or Akshaya Tritiya since prices tend to be highest at those times. When everybody is talking about gold and just about everybody is on a gold buying spree, remember that's the time to go easy and not buy it.