Will Gold Maintain its Sparkle among Investors?

Planning

oi-Sneha

By Sneha B K

Published: Saturday, March 31, 2012, 13:01 [IST]

Gold plays a very important role in every Indian’s life. If we look at the Indian system, it is quite evident that even in a very poor family’s marriage, gold shares 25% to 40% of entire marriage expenses.

If we assume a standard marriage’s total expense to be Rs 10 Lac, then gold would share 30% of it i.e. Rs 3 Lac. It means 100 grams jewelry (including Tax and Making Charges).

Gold is also regarded as the true asset of every woman. The Indians prefer to buy gold in most of the auspicious moments such as festivals, marriages and anniversaries.

The question now arises that what is the reason for Gold being so important to an Indian?

Why Gold Is So Important to An Indian?

It is a general perception in India that gold is the last hope to raise money in the most adverse situations. That’s the reason why an Indian only buys gold and rarely sell it back in the market and considered as a final resort.

Following are some vital points due to which Gold plays the very important role in among Indian investors:

Highly, Liquid Asset: Gold being highly liquid in the financial market, so it can be encased anytime at the market rate. In need, it doesn’t loose the shine, and full value can be fetched while sold in the market.

Status Symbol: In India, Gold is a symbol of wealth and prosperity. The more gold one holds the greater status he/she is awarded in the society.

Ease of Holding and durability: It is difficult to keep cash money in the vault for long time, but gold are very durable and easy to hold. It is least affected by weather and climate change.

Reliable Investment Product: It is one of the most credible investment products. It has been observed that Gold is one of the few financial products that have outperformed inflation in long period of time.

Religious Importance: Indians believe that its auspicious to buy gold during Akshya Tritya, Diwali and Dhanteras, as it also symbolizes Goddess Lakshmi.

Woman’s Best Friend: Indian women’s first choice for ornament’s metal is Gold. They buy gold ornaments throughout the life and if the design is outdated again they exchange it with the latest one.

Ancestral Value: As Indians rarely sells the gold back in the market, so after death of a person, his gold property is distributed within the family members as an inherited property and this system of gold passing continues from generation to generation.

The Government is discouraging gold investment?

The recent steps taken by government has not been supporting for gold investors. The import duty on gold has been doubled to 4% and a TDS on cash purchase of gold over Rs 2 Lac has been imposed in the budget 2012. Though in short, term this step may discourage the gold investors but in long term gold investment would remain undeterred by such steps. With increasing competition from China, the domestic gold market is expected to fight back and grow faster than before.

What’s future expectation for gold?

The Gold is in a historic bull phase. It has increased by an average of just around 20% per annum over the last 11 years, outperforming every other asset class. The main drivers to gold are monetary stress, deficit spending, risky debt, currency debasement, ballooning money supply, Inflation and so on.

The current domestic and global economic condition suggests that all the drivers of gold are still in place, and it is expected to remain intact in near future also. So, the gold story is still alive and expected to make its presence felt in near future again. After touching the level of $1920, it is searching for a base to consolidate.

After touching a low of $1620-30 level recently, it is now expected to bounce back to a level of $ 1800 in coming weeks. The Investors can take a buy position for a target of $1780-$1800 keeping the downside risk of $1550; below that, it can slide further downward. For now, the crucial trading level for gold is expected to be $1550 to $1820 in short to medium term.

Gold is an integral part of the Indian’s investment portfolio. The government rules and global scenarios may affect the gold attraction for some period but in long term, gold would always attest itself to be the number-one choice for the Indian investors.

The yellow metal is expected to continue its sparkle in the future and outperform the other asset class in terms of average return in long-term investment.

InvestmentYogi.com