On Akshaya Tritiya, do you need to revisit your gold investment?
For the last 12 years gold had shown a massive build on interest. The bull cycle was extended so much that it looked ballooning in 2013. The corrective wave has approached the bullion this year and it is so hard for many to believe that gold can correct so steeply.
Indian gold prices have slipped and still counting on the lower side. The world's over-bearish bets on gold have pressed the need to think that whether right time has come to revisit gold in your kitty. Today, on the occasion of Akshaya Tritiya, we have come up with six points which show that the time has come to book some profits in gold investments.
Investment doesn't disallow profits:
The first important thing that an investor must understand is that in no way do investments disallow profits. This means that if you had invested in gold you can also book profits, provided you want to do so.
Some investors are confused about the timing of booking profits and when they miss the train they become frustrated. The approach should be to chalk out what kind of returns you expected from your gold investment. If the returns have been achieved, book profits and sit on cash. Wait for new investment alternatives. If you are a die-hard gold fan then wait for better levels to emerge before you can reenter the markets.
Confidence in risk takers:
Risk bearers have looked more charged at the state of the US economy ever since the Federal Reserve's calls that it will end its famous quantitative easing program. The US economy has entered a recovering mode and this has lent sharp interest favoring the dollar and a move away from traditional safe haven investments like gold. US equity markets are getting better, indicating that money is now being poured into riskier asset classes and away from bullions that had an extended rally over a decade. The confidence of risk takers means that gold can see some more grim days and prices can correct further. In case you are an investor who is looking for the right time to exit this metal, it is now.
Indian gold demand dips:
Indian gold demand dipped considerably last year and the measures by the government to bring down gold imports are expected to affect the metal further. Indian gold demand is important not only from a domestic point of view but also from the international angle as the country is the biggest consumer of the metal the world, along with China. In a bid to control current account deficit, the Indian government raised the import duty on gold to 6 per cent. Indian gold demand declined by 12 per cent to 864.2 tonnes in 2012.
The demand is expected to remain in this range in the coming year as well on the back of strong measures by the government.
Consumer-end demand is missing:
The central banks of Russia and South Korea are still buying gold and improving their reserves, but the fact is that consumer-centric demand in gold is missing. Higher prices have been the sole driver for lower demand of gold by consumers. The Chinese central bank has already indicated that it is in no mood to increase its gold reserves further. In such scenario, buying from Russia and South Korea doesn't seem enough to mitigate the loss of demand from other segments.
Pricing of gold:
One reason given at the time of the gold rally was its undervaluation. With the passage of several years of rally on a trot this assumption looks jaded. Compared to other commodities like copper and crude oil, gold looks a bit overvalued. Demand and supply determine the value of a particular commodity, and if the demand is missing then gold is expected to come down to meet the aspirations of the buyers' prices. The purchasing power of consumers and the prices of gold got mismatched after it crossed Rs 32,000 levels in Indian markets and almost $1,800 per troy ounce levels in international spot markets. The correction in gold prices is necessary to decrease the gap between the two. Therefore, reassessment of a portfolio is not a bad idea for you.
ETFs are selling:
An investor should always use his rationale in deciding on his portfolio, but that doesn't mean that one can ignore the trend going on in the markets. The trend is that heavy outflows of gold are happening through gold ETFs. The outflows are a sign that the big funds are booking profits in gold as they think that it is the right time to become cash rich. World billionaires like George Soros recently slashed their holdings in gold. Investors should not blindly follow the decisions made by others, but fund selling and trends should not be ignored. Selling in ETFs is due to the confidence in the US economic recovery that once led investments pour into gold at the time of the housing crisis.
It is, therefore, essential that you recheck the objective of your investment in Gold. If your objective was to earn decent returns this is the time to churn money. If it was to keep adding Gold in your assortment do that after some time as the prices can move further down from here. If you were a long term investor worried with what is happening in the world, stay cautious and start following the trend.
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