Gold still can hold for long
Gold prices have seen a sharp correction in recent times. Many of the forces that drove the gold prices...
Gold prices have seen a sharp correction in recent times. Many of the forces that drove the gold prices higher are moving in reverse and in tandem. The events of weak global economic & political situations, the collapse in real interest rates in the US coupled with a rise in US equity risk premium, de-hedging by gold mining companies and a coordinated gold reserve sales by European central banks has helped gold to notch continuous rise for about a decade. In recent days, we've seen the US equity indices touching new highs after the 2008 meltdown. This along with the rising US real interest rates has worked against the Gold but with gold liquidation by Cyprus setting the precedent for other Euro zone countries took the sheen off the gold as an investment. This brings us the new realty for Gold and especially Gold as an investment. The distinctive characteristic of Gold is the high share of investor money and physical hoarding that occurs. The impact of a commodity investment in the futures market on the spot price is short term in nature and limited in terms of driving medium to long term price trends as long as the investors don't hoard that specific commodity. It's, however, not the case with gold. Gold stands out as a market where there is physical hoarding. In fact almost one third of global gold demand is made up of investment demand and this excludes jewellery demand for investment purposes. No other commodity in the market has such a high share of investor participation. Consequently gold is very vulnerable when investor sentiment changes as it has over the past few weeks. So, what now is the fate of gold? Gold could, however, do well in long run. Since the health of the world economy is still shaky and many countries are still struggling to achieve normal growth - augurs well for gold. The high fiscal deficits of governments, is likely to help this trend. Hence, it is still advisable to hold 5 per cent � 8 per cent of your portfolio in gold as part of one's asset allocation. A systematic investment in gold fund (i.e. thru SIP) which will take care of the volatility in gold prices in ETF linked MF is a right option. For investors looking for consumption, one may rather use phased investments than lump sum ones as we may witness some more correction in gold prices. Gold to turn expensive A from June 1 New Delhi (PTI): Cash purchase of gold, including coins and articles, exceeding over Rs 2 lakh will attract one per cent tax from June 1. "The sale of bullion (including coins/articles) in cash in excess of Rs 2 lakh shall be subject to TCS (Tax Collection at Source) at rate of one per cent. Similarly, sale of jewellery in cash in excess of Rs 5 lakh shall be subject to TCS of one per cent," it said in a clarification on the changes made in the Finance Bill 2013. The modified tax provisions will come into effect from June 1, 2013. K Naresh Kumar
18 Aug 2019 8:50 AM GMT