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Is Gold Still Making Money for Indians?
Thu, 23 Mar Pre-Open

In a recent edition of the 5 Minute WrapUp, my colleague Rahul Shah spoke on the impact of recent Fed rate hike on stock markets, gold and the dollar.

  • Indian stock market outperformed the overall market and registered an impressive gain of 11%. Similarly, stock markets in the US and the UK increased by 5.8% and 6% respectively.

    On the other hand, the US Dollar Index tumbled on the back of a dovish outlook from the Fed. The weaker dollar is helping commodities like gold. Gold is up 5.5% since mid-December 2016.

Rahul gave a perspective on returns on these asset classes during the period between two consecutive rate hikes. Now, the fed's impact on financial markets is a broad theme and one can talk for hours on end on all the probable outcomes here.

But let's narrow our focus on gold today. How has this precious metal performed in the recent past? And is it still a good investment option?

If one has to track the past performance, gold price in dollars per troy ounce stood around US$ 1,800 in September 2011. The same stood at around US$ 1,200 during the end of 2016. What this clearly tells us is that gold has been a losing proposition over the last five and a half years. Gold measured in rupee terms has fared slightly better due to rupee losing its value (depreciation) against the dollar.

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Many consider gold as a hedge against inflation and a tool to preserve wealth. Buying gold is the traditional way to protect against inflation and recklessness governments. Gold moves your capital out of the fiat money system and into a hard asset.

The question is this: Should one increase his exposure towards gold?

We think that is perhaps too speculative a call to take as there are too many variables that influence gold prices.

One can have a little exposure to gold as an insurance against any unexpected global economic turmoil. One can also look at it as a portfolio diversifier. At the same time, we will continue to weigh the potential returns from the Sensex versus the yellow metal.

To know more about whether the yellow metal has the potential to fetch positive returns ahead, you can read the latest Vivek Kaul Letter - But What About Gold?, where Vivek digs into the data and busts a few myths to show how gold investments have fared for Indians.

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Jan 17, 2018 03:35 PM