All that glitters is GOLD!

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In India, Gold has been a symbol of richness and prosperity since ancient times; recent times have given Gold an additional Investment sheen. Investors view gold as an ideal way to insulate wealth from inflations. Here are some of reasons.

Over the years, gold has also shown a strong negative correlation with other investment options like stocks, bonds and US Dollar price. As in the case of stocks, the balance between supply and demand has a key influence on the price of gold, but the key players in Gold are different.

The existing stock with the world’s central banks and International Monetary Funds are the main supply sources. Banks across the world procure and stock gold to minimize(hedge) the risks they face with their other investments. Gold sales by the banks can lead to a sudden increase in supply and pull down the price. Uncertainty in the value of the dollar, volatility in the stock market or political crisis in the country can prompt banks to lean towards gold as an investment option.

Gold mining companies, the primary of gold supplier also base their production decisions on price trends.

The London Gold Fix is the most commonly followed benchmark for gold prices. Recent years have seen increased investment in gold commodity and gold exchange traded funds, which invest in physical gold. India being the world’s largest gold jewellery market, affects Gold demand significantly and thus the price. But investment demand more than jewelery demand govern gold prices.

Investors need to keep watch on other key macro factors that have an impact on gold prices- trends in the US dollar, crude oil prices and global economic or political events.

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Attention Indian investors : In dollar terms, gold has given a return of 19.5 per cent this year, but with the rupee appreciating by 10.9 per cent, domestic gold prices have gained only 6.6 per cent.

For Indian investors to capitalize on the global increase in Gold prices, it will be advisable to invest in Exchange Traded Funds like Gold BeES that follow global trends.

By allocating 5-10% to Gold, you would have a 'safety net' for your equity investments.