The yellow metal is going through a golden era. For an investor (not for a trader) gold has always been the safest investment.
Economic uncertainties—think of the gold,
Real estate uncertainties-think of the gold,
Share market uncertainties- think of the gold
This safe investment may not be rewarding as for the returns, compared to shares, mutual funds etc when the going is good. The recent consistent rise in bullion prices is due to currency devaluation and government’s debt buying. The present scenario relating to the gold prices confounds the best brains on the issue of investment in gold. This rise in prices without let up is confusing, and no dealer ventures to give advice to his clients whether to go for fresh positions on the buy or sell side.
Experts opine that the commodity is overbought, but this opinion is for personal consumption and not a trade advice. The scenario is confusing.
We are out to face the most volatile situation. A section of the experts strongly advises not to go for future positions and liquidate half of the existing ones. Instead of giving any concrete advice to buy or sell, it is safe to make the clients aware of the different scenarios to enable them to take their own decisions. India is one of the major importers of gold. This country imports 97% of its annual gold demand, about 500 tons last year. At the current record price level, this week has been the best in the last six months. The dollar has pushed down 7% against several currencies during the last month. In the same period gold has gained 10%.
Has the gold price reached the peak level? It is a difficult question now to predict the top. Kilo gold future contract is bimonthly in nature and facilitates the purchase or sale of gold of that quantity at a predetermined price for delivery at a future date. This is how the gold market operates. The safe course at present is to trade with strict stop losses instructions. Error on this count at this stage, may lead to serious troubles and great losses.
The reason for the abnormal upward swing is due to major economic decisions by the world governments. The challenge before them is to arrest the most-feared double-dip recession. This is the reason for their buying of debt, as they wish to save their economies.
The highest rate for an ounce of gold during the day (Thursday-2010-10-07) was $1,364.60. Market sources believe that the prices will steadily rise and the price could average $1,500 an ounce by 2015. This is the modest estimate. It could even go up to $2,000 according to a section of the experts. The gold price depends on the condition of health of the global economy and there are no two opinions about it.
The fall in the dollar price is the impetus for the gold prices to rise. The knowledgeable dealers advise the clients to think gold investment as an insurance policy to meet the persistent uncertainty in the global economy. In one’s investment portfolio, the share they are willing to concede, even under the seemingly bright conditions at present, is just 10%.
One final suggestion; invest a reasonable amount of your portfolio in gold; the prices will continue to rise but not in the geometrical progression as one might wish, but in the arithmetical progression, never to cause any serious disappointment to the investor.