Gold prices falling, is it time to be excited or worried?

June 04 , 2014

The price of gold has been falling during the last few months and has gone below Rs 24,000 per 10 grams.  At once it even touched a high of Rs 32,400 per 10 grams. So is this a news to really get excited about or do we need to start worrying?

Firstly, we need to understand why we are after all concerned about the fluctuations in prices of gold. Gold prices are a matter of concern for the majority of us who buy jewelry for cultural reasons especially for weddings. There are the other set of people who see gold as an investment asset and accumulate gold both physical and ETFs.

Gold for wedding:

If your daughters wedding is expected in next 8 to 12 months and you need to buy jewelry then you have reasons to get excited about. But you may have one dilemma, should you buy all the jewelry now or wait for it to fall further? We recommend you plan the purchases from now and stagger it over a period of 3 months.

Gold as investment:

Though many of us may not understand the inflation angle, intuitively we all know that gold is a great wealth preserver. Wealth is preserved when the value of the investments grow at a rate more than the inflation rate. Gold precisely has done that consistently for ages. Hence Indians find gold to be a safe and simple investment avenue to beat inflation. The other alternatives like real estate and equities are out of reach or complicated for an average Indian and so they keep accumulating gold.

Should you invest more in gold now or exit from some of your investments?

We recommend you to do neither; just do not pay too much attention to this as an investor. But one thing you always need to be attentive about is that at any point of time your total investment in gold should not be more that 15% of your overall portfolio. This one rule applies always whether the gold prices are at Rs 45000 per 10 grams or Rs 20000 per 10 grams. If your total exposure to gold exceeds 15% or is too less a portion of your overall portfolio then there is a reason to worry.

Why the prices are falling

Just dont care too much about it. For the ones who are curious the straight answer is that other investment assets are beginning to do well and monies are moving out of gold to those assets. It is not that suddenly some 20000 tonnes of gold mines got discovered.

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