Gold prices are falling day by day. I have checked my gold portfolio where I am investing month on month in Gold ETF’s and seen a considerable amount of dip in the value. Gold has been evergreen and safe investment to Indian investors. It has given a record returns of 20%+ per annum in last few years. Analysts predict that gold prices would fall further to Rs 24K per 10 grams of gold. Why gold prices are falling? Can we see gold shining in the future? With falling gold prices, should we invest more in gold or should we exit from gold investment now?
Why gold prices are falling?
Gold prices have seen a peak of Rs 33,000 / 10 grams in Aug-2013 and low of Rs 27,000 very recently which includes custom duty and premium charged by banks. It is important to understand why gold prices are falling now.
Also Read: Reliance my gold plan – Review
Current Account Deficit reduced: Last quarter of Financial year 2012-13, our current account deficit (CAD) was 3.6%. With such high CAD, RBI has taken several steps to bring down this CAD. One of the measures was to impose several restrictions on gold import. In the 4th quarter of financial year 2013-14, current account deficit has reduced to 0.2%. With this RBI has now eased gold import norms which are impacting the gold prices to fall.
Rupee in control: Stable Government would help Rupee to be in control. Rupee is one of the components that affects gold prices and determines its costs. Strong rupee would lower cost of gold. We have seen Rupee appreciating from Rs 62 to Rs 58/59 in the last few months.
Foreign capital inflow increased: In the last few months, we have seen foreign capital inflow has increased. Forex reserves increased by 15% in last 6 months.
Are gold prices expecting to fall further?
Gold prices are expected to fall further.
- Rupee could become much stronger going forward.
- Current account deficit may not have much change, but would be in control.
- RBI has partially lifted restrictions on gold imports few days back. In future, it can completely lift restrictions on gold imports and gold prices could further reduce.
- Analysts are expecting that the new government would reduce the import duty on gold from 10% to 6% approx due to correction in international prices. This could happen in the coming weeks.
- Gold in international market is bearish. Dollar appreciation, rising interest rates in the US and boom in equity markets are some of the factors which are making gold to lose shine. Any downfall in gold prices in the international market could impact the Indian gold market and gold prices could still fall in India
- Gold prices may fall to Rs 24,000 per 10 grams by Sep-2014. On the other hand, Joy Alukkas and Tanishq are reporting increased sales in gold jewelry in the last few days.
What strategy I am adopting now?
Now you would have got confused on what to do on gold ?. I personally want to adopt the following strategy.
- I would not sell by existing gold investments which are in the form of Gold ETF’s as I do not want to book losses.
- I would continue to invest through monthly investment option (Systematic Equity plan) in Gold ETF’s.
- I would wait and watch on the gold prices. In case of any major dip, I would invest lump sum money.
- I would also ensure that my gold portfolio is not overloaded. I would maintain maximum of 20% for my investment in gold.
I would not expect you to do something different from what I am doing. It is immaterial whether you are investing in physical gold, gold mutual funds or gold ETF’s. If you have any immediate requirement to buy gold, there is no choice for you. You can go ahead. However, if you are looking to invest based on current gold prices, don’t rush. You should wait and watch for some more time before making a fresh investment in gold.
Also Read: Best Gold ETF's to invest now
Conclusion: Gold is losing shine in international markets. Though Indians are gold lovers, several measures taken by Government and RBI are bringing down the gold prices. The gold prices are expected to fall further in coming weeks. You should watch the gold prices in coming weeks and then take a call for fresh investments in Gold.
Friends, what strategy you would be adopting now during the fall in gold prices? Do you see any other good strategy to invest in gold now?
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Should you buy more gold or exit from the gold
Nice set of articles and my compliments. A clarification on gold ETFs please.
At the time of redemption will I get physical delivery of gold or money equivalent to it. Or can I exercise choice between either of them. If it is physical delivery then how is the purity and weight assured.
You would not get physical gold. You can sell them and buy equivalent gold with your local gold jeweller
Thanks again for an informative article. My query is: I do not have a DeMat account so i can not invest in Gold ETFs. But i have equity mfs in my portfolio. Is this the right time to add a gold mutual fund to my portfolio?
I looked at the returns of Gold mutual funds (Quantum Gold fund & Reliance Gold Savings fund) but their returns are all negative since inception. Also their NAV is at a 52-week low right now. Is this the correct time to purchase one of these Gold MFs for a period of 2-3 years?
Akshay, If you have demat account, you CAN invest in gold ETF’s. Also you can invest in gold mutual funds too. You should understand the difference between gold ETF’s and gold mutual funds before you invest.Check this link. https://myinvestmentideas.com/2013/02/gold-mutual-funds-and-gold-etfs-which-is-the-better-investment-option/
In my entire Life this is my first Investment. I am a new to GOLD ETF's. I am Planning to invest in that say Monthly 3000 and loking for a short Term Investment 3 years.. should i Go with that or Suggest me some other Options..
You can invest in gold ETF’s or gold Mutual funds
plz help me..want to buy little gold for my daughter for marriage purpose. Should I buy right now or wait little. Is there a change that Gold price may fall down in 2014?..Plz help…me.
Hi TPS, It is difficult to say what would be gold price by end of this year. Irrespective of the status, start purchasing some gold with every dip and accumulate