Why You Should Invest In Gold This Dussehra - Outside View by PersonalFN

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Why You Should Invest In Gold This Dussehra
Sep 29, 2017

Dussehra is celebrated to commemorate the triumph of good over the evil. Several stories are attached to this day across India.

In the northern, southern, and western regions of India, this festival is noted as the victory of Lord Rama over the demon king Ravana. It is celebrated after the nine-day festival of Navratra.

In Eastern India, Dussehra or Vijayadashami marks the end of Durga Puja, which celebrates the Goddess Durga's victory over the buffalo demon to help restore the faith in goodness.

It is also marked as an appreciation of the divine feminine energy with a deep respect of Goddesses such as Durga or Saraswati.

Common practices of this day are:

  • Performances of Ramlila - a drama to enact a short version of the epic Ramayana
  • Bonfires and fireworks
  • Burning of paper and wood effigies of Ravana
  • Special delicacies are cooked for this day
  • All work-related and house-hold items such as books, computers, machinery, vehicles are paid respect and expressed gratitude.
  • Purchase of gold and silver coins or ornaments, electronics, vehicles etc. on this auspicious day.

Many also believe this day is an auspicious one to start a new venture, project, or journey on Dussehra. Whatever, maybe your reason for celebration on this day, one ritual that is commonly practiced is the purchase of gold. Some prefer to buy gold jewellery, while some buy it as an investment. In fact, we Indians have an insatiable appetite for gold.

And as we flock our way to jewellery shops, in search of good fortune, this Dussehra and Diwali, the demand for gold is likely to perk up. Festive season followed by the wedding season usually drive the demand even higher.

What's currently happening in the Gold market?

India's gold imports in August nearly tripled to 60 tonnes from 22.3 tonnes a year ago on duty-free buying from South Korea. Primarily because it had a Free Trade Agreement (FTA) until August 25, 2017, so the 10% import duty didn't apply.

However, this year the domestic demand in August, per se, was weak due to higher prices plus the applicable GST. However, in anticipation that it would pick after the inauspicious period of Shradh (which on September 19 this year), official gold imports rose.

Globally gold prices have shot-up as:

  • North Korea continues to test bombs and missiles,
  • Geopolitical tensions have amplified,
  • Dollar is sagging (on fears of a strike on the US by North Korea),
  • Federal Reserve has maintained a status-quo on interest rates,
  • Doubts about the Donald Trump's untested policies, and
  • On-going process of 'Brexit'

With the aforesaid backdrop, sensing the systemic risk involved, even the central banks across the globe aren't taking any chances. Some have increased their gold reserves, while many others are maintaining their positions.

So, should you buy gold this Dussehra?

Although, buying gold on this auspicious day, especially jewellery, isn't unbeneficial, the question of whether it would translate into a good investment depends solely on how much you buy and how long you expect to hold onto it. Those buying with a short-term view in the hope of making 8%-10% returns in a month or two, (given that experts claim prices are likely to rebound) may be unhappy to with the performance of their investments. On the contrary, those buying with a long-term view of say 7-10 years may not feel the heat.

With the rising geo-political tension across the world, there is a rising fear of a World War III. Due to this the demand for gold might boost as it is considered as a safe-haven. However, gold has an inverse relationship with the US Dollar and as the expectation of an interest rate hike in December is low the demand for gold seems to be high in the next few months.

PersonalFN is of the view that instead of looking at the strengths and weaknesses of gold, or any other asset class for that matter, it would be best to focus on strengths and weaknesses of your personal balance sheet. You should invest as per your personalised asset allocation, which considers your long-term goals and risk appetite.

Therefore, as and when prices drop, start accumulating gold at regular intervals and don't just purchase it on auspicious days. Ideally, gold should constitute close to 10%-15% of your investment portfolio. Speculation in any form is hazardous to your success in investing.

Now, having recognised why gold is an inevitable investment option and why it should be held for defensive consideration in your portfolio and as an investment diversifier; let us look at various ways through which you can take exposure to this precious yellow metal.

Holding gold in physical form i.e. in the form of gold jewellery or coins or bars is the most conventional way. But it is noteworthy that, this feeling of contentment by buying physical gold comes at a price.

And the unconventional way of buying gold facilitates you to invest in gold in a non-physical form i.e., either through paper form or even in non-paper form (which is electronic form), but they offer the advantages of investing in gold. Such smart investment options are:

If you are planning to buy gold, then investing in a paper form is the most suitable option for you. They offer you a good proxy for gold prices. The primary advantage which you'll derive by holding gold in non-physical form is that you'll do away with the physical holding of gold and therefore not incur holding cost thereto. Further, you don't have to worry about the quality of the gold which you hold.

Wish you a Very Happy Dussehra!

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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