gold prices

should i invest in gold

Does investment in gold at this time makes sense? Is this the best time to invest in Gold? This is the question which everybody is asking now a days. Gold has touched Rs. 32000/gm. And analyst are predicting gold hitting Rs. 35000 in another three months. The spectacular appreciation of gold in last four years, and the fact that equity markets are not performing well, have made many people rush to buy gold as investment even at these levels.

There are many factors that have contributed towards the rise in the gold prices, the major ones are the lack of trust and faith of investors in Governments and their Central banks and choppy equity markets. As banks continue to print money, investors are forced to opt for a safer “gold”. One can witness another rally in the short run if US goes for another round of Quantitative easing.

There are two theories on whether Gold will continue its rally in the medium to long run also. The first is that gold has rallied very fast in the last 3-4 years and hence is due for a correction. Speculative buying has pushed the gold into a bubble which is poised to burst anytime in the coming year. The other theory is that till the time investor’s confidence in Governments does not return back to normal and till the time financial markets do not start yielding decent returns, gold will continue to rise. And this might take some time.

Thus whether one should invest in Gold depends on the theory of relative comparison with other investment options available. Equity markets are at their 2 year low and still far away from their peak of January 2008. While Gold in last one year alone has given close to 35% returns. Thus stocks in medium to long term offer relatively better chance of bigger returns than gold. One must also keep in mind that in last 100 years, equity markets have outperformed gold perhaps 8/9 to 1 as an investment. Further if you have sufficient funds then investing in property also looks like a decent option.

Assuming that an average Indian already has a fairly large amount of gold in their portfolio, and might have invested more in the last 1-2 years, one must consider investing in other asset classes instead of adding more gold to their pool of investments.