Continuing from the previous post, we will see the few important consumer questions like what to look out and what can you do in this current Gold Rush period.
What to look out?
Lakshmi Iyer, head of fixed income and products, Kotak Mahindra AMC India, tells in her interview with FE, “There has been a recent break out in gold prices and into the buying of gold as an asset class. This is a little contrary to the expected trend. Normally, one would see a lot of redemptions happening now, especially since the gold prices have gone reasonably upwards after being range bound for a while.”
“However, with the festive season approaching, the demand for gold on the outside primary markets has gone up as well. The Indian investor’s mood suggests that they now feel that gold will increase in price. So far gold had been range-bound, but now it may not remain that way much longer, and I too believe the price will increase. Most financial advisors and portfolio managers are of the opinion that one should hold gold as an asset class and at least dedicate between 5-15 or 20% towards it,” Iyer adds. This is also being done as a counter-balancing measure as after a long time have people begun increasing their overall portfolio risk by now investing heavily in equity again, she says.
Iyer whilst talking about the future of gold or what is to be expected in the coming months says, “In the short-term we may see a 40-50 dollar rise in gold prices, after which as far as gold funds go, one may notice profit booking and correction phase. However, I do not expect this correction to be all that much, but it will provide investors with another entry point into gold none the less. In the long run I feel that the price of gold will definitely go up. As we go along people should get use to higher gold prices.”
She went on to add, “The world central bankers have all created liquidity within the markets, and it does not appear like they are going to withdraw this money anytime soon. In such a scenario the only hedge to inflation and money supply will be gold. This is not something that will take place instantly and gold is in no hurry. However, I would not be surprised if the price of gold goes as high as $1,500-$2,000 or even double the current market levels. This could happen in the long-run especially, and I feel a 3-5 year holding period is a reasonable frame.”
As the dollar has been weakening and risk aversion is setting into investors mind, gold is once more looking attractive and its demand is high. A shift from currency assets to gold assets is in the process and like in 2008 when gold did well due to a low risk appetite seen in investors, this time round too, a similar strategy may be seen. Inflation expectations are also building and gold is again perceived as the best hedge against inflation.”
What can I do?
The desire of gold is not for gold. It is for the means of freedom and benefit.” Ralph Waldo Emerson, a 17th century American writer’s summary on why gold is so sought after. Gold is considered an hard core asset with real appreciating characteristics in this current economy.
While facts, figures, numbers and historical data all predict that gold is going to have another wave of price rises and increasing demand this September and maybe for the coming time frame after that. Prudence is still a better route while cashing in any windfalls your gold portfolio may make it a good idea, skewing one’s overall portfolio to favour more than 20% or so of gold.
This could be counter-productive as, only last year most investors only painfully learnt that history is not the answer to the future, as things we may not have considered can always occur.
Financial advisors are very much in tune to the idea of gold being a good investment choice, but they too are weary of becoming over-dependent on it and rather use it as a safety net for their clients.
“The price movement in the last six months has been sideways and therefore while many speculators felt that the price of gold would drop and provide an opportune entry point into this asset class that, has not been the case. Also, with the weakening dollar, gold price has strengthened as well.
All in all, gold is looking to glitter all right and the third quarter, starting with magical September looks like a good time for investors to make sure their portfolios and lockers have a decent amount of gold to navigate this wave.