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Gold Catches Fancy Of Common Investors

Posted on December 23, 2009
Filed Under Business, Economy, Industry | 5 Comments

Gold has made a tentative entry into the portfolios of many common investors in 2009. Of course, it was mainly aided by the yellow metal’s blinding returns in a short bursts, when all other assets were plumbing depths in the aftermath of global economic crisis. According to investment experts, many investors have realized the precious metal’s ability to act a stabilizer in the wake of economic uncertainties and its important role as a perfect diversification tool over a long period of time during the current year.

“Earlier, we used to explain to our clients about the importance of diversifying into various asset classes such as debt, equity, gold and so on, but these days very little explaining is required to convince them about investing in gold,” says a private wealth manager in a foreign bank. “People have actually warmed up to the idea of diversifying into commodity, thanks to scorching gold prices,” he adds. Gold has touched a historic peak of around Rs 18,200 per 10 gram early this month. Though there has been a correction ofaround 7.0-7.5% since then, experts believe the metal would continue to make gains in the coming days.

“Most investors watch the movement of sensex closely, but they don’t do the same with gold prices. The news hit their eyes only when the prices are up. Also, extreme volatility is mostly absent in gold unlike the market which is totally unpredictable,” says a mutual fund manager, who doesn’t want to be quoted. “We believe investors’ new found enthusiasm to invest in gold is more of a psychological factor. Gold ETFs have been attracting large number of investors these days.”

However, investors should not take the new fancy to the extreme, warn consultants. “Investors should understand that gold is unlikely give phenomenal returns in long run. It is not a substitute for stocks. Sure it tends to do well when there is uncertainties in the economy like the one we have just witnessed,” says the wealth manager. “They should invest around 10% of their total portfolio in gold. The percentage can differ according to the individual asset allocation plan,” he says.

Investing more than one’s original plan in any asset, including gold, can have an adverse impact on your returns from the portfolio. For example, gold is likely to give you one or two percent over the inflation rate. If you are removing money from stocks and investing in gold because of the temporary market conditions, it may eat into your returns. Remember, stocks would beat gold in the long term under normal economic conditions.

Most experts recommend gold ETFs as preferred tool to invest, as it doesn’t involve the practical problems of buying physical form of gold. Madhu T, The Times Of India

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